Apart from the SLN and DDB methods of calculating depreciation
charges on fixed assets like furniture, machinery, tools, etc. This method
works on a basis of age as you will see later in this tutorial. Depreciation is
a very important topic in accounting and business management.

##
**SUM OF YEARS DIGITS (SYD)
METHOD**

The Sum of Years Digits (SYD) method states that an asset
contributes more to the profit of a company or business organization when it is
new than when it is old. Therefore, a higher depreciation charge should be
charged at the early stage of the asset. The Sum of Years Digits Method is very
similar to the Double Decline Balance Method.

In the

**previous part (Part 1)**, I explained how to use the Straight Line (SLN) method and the Double Decline Balance (DDB) Method to calculate depreciation charges both manually and using MS Excel. Also see the**full tutorial course content of this Microsoft Excel Tutorial Series**.#### For the manual calculation using the SYD method, the syntax or formula is:

**(Year of Calculation / Sum of Years Digits) * (Cost – Salvage Value)**

**Where:**

**Sum of Years Digits**is calculated with this formula:

**(n**

^{2}+ n) /2
Where

**n**= Useful life of the asset.^{}**Year of Calculation**is the particular year you want to find its depreciation charge value.

**Cost**is the amount you bought the asset.

**Salvage or Scrap Value**is the worth of the asset after its useful life.

**Life or Useful Life**is the time that the asset takes to attain its scrap value.

####
**NOTES:**

If there is residual or salvage value, you must deduct it
from the cost of the assets so that you get the

**Actual Cost**which is**Cost – Salvage Value**.
So the manual formula for SYD method could be re-written as:

**(Year of Calculation / Sum of Years Digits) * Actual Cost**

#### The MS Excel Syntax for the SYD method is:

**=SYD(Cost, Salvage, Life, Period)**then press the enter key

##
**PRACTICAL
ILLUSTRATION OF THE SUM OF YEARS DIGITS METHOD**

For the Sum of Years Digits method, I will show you a more practical
example of how to calculate the depreciation of an asset using both the manual
formula and MS Excel Syntax.

###
**QUESTION:**

An asset was bought for $1000 with 5 years useful life and a
scrap value of $100. Compute its depreciation schedule using the Sum of Years
Digits (SYD) method.

###
**SOLUTION:**

####
**SOLVING MANUALLY;**

Cost = $20000

Salvage value = $5000

Useful life (n) = 5 years

Actual Cost = Cost – Salvage = $1000 - $100 = $900

Sum of Years Digits = (n

^{2}- n) / 2 = (5^{2}- 5) / 2 = 15**OR**

5 + 4 + 3 + 2 + 1 = 15

The depreciation charges for the five years of useful life
are calculated as follows using the above given formula and substituting values
directly:

**Depreciation Charge for the 1**

^{st}Year
= (5 / 15) * (900)

**= $300**

**Depreciation Charge for the 2**

^{nd}Year
= (4 / 15) * (900)

**= $240**

**Depreciation Charge for the 3**

^{rd}Year
= (3 / 15) * (900)

**= $180**

**Depreciation Charge for the 4**

^{th}Year
= (2 / 15) * (900)

**= $120**

**Depreciation Charge for the 4**

^{th}Year
= (1 / 15) * (900)

**= $60**####
**NOTES:**

If you calculated the value correctly, you should get back
the salvage after deducting the depreciation charges from the

**Cost**
i.e. $1000 – ($300 + $240 + $180 + $120 + $60) = $1000 -
$900 = $100 =

**Salvage Value**####
**USING MICROSOFT
EXCEL FOR THE SYD METHOD;**

Prepare your worksheet and enter the data as shown below.

Place your cell pointer in the following specified cells and
type the following syntaxes:

**For the Depreciation Charges:**

In cell B6:

**=SYD(B2, B3, B4, B5)**
In cell C6:

**=SYD(C2, C3, C4, C5)**
In cell D6:

**=SYD(D2, D3, D4, D5)**
In cell E6:

**=SYD(E2, E3, E4, E5)**
In cell F6:

**=SYD(F2, F3, F4, F5)**

If you got everything correctly, your worksheet should now
look like the one shown below.

###
**CONCLUSION NOTES:**

Excel may display an error message, check the error code and
make the necessary corrections, revise

**Chapter 1 of Part 3****where I explained MS Excel error messages and their solutions in detail now.**
The answer you got when you used the manual method should
match with the ones you got using the MS Excel SYD syntax because there was no
approximation.

##

## Recommended MS Excel Textbook

##
Get this book (Kindle format): **Designing Professional Spreadsheet Management Systems Using Microsoft Excel 2013 and 2016**.

Click **Here** to know more about the book.

Get this book (Kindle format):

**Designing Professional Spreadsheet Management Systems Using Microsoft Excel 2013 and 2016**.**Here**to know more about the book.

Let me now test your knowledge.

##
**PRACTICAL EXERCISES
ON DEPRECIATION**

Please try to do these practical exercises on your own. It will
go a long way to help you.

1. What are the causes of depreciation?

2. State 3 reasons why a provision for depreciation is charged
on a fixed asset.

3. Johnson Enterprise purchased a delivery van for $50000. The van
has an estimated useful life of 8 years with nil scrap value. Calculate the
annual depreciation charge using the Straight Line Method.

4. Joe-Links Services bought an asset at a cost of $20000. Other
expenses incurred in the charge and installation amounted to $5000. The company
depreciates its assets at the rate of 20%. On cost per annual on a straight
line basis, calculate he depreciation charge.

5. Joe-Links Services purchased some equipment for $10000 with
5 years useful life after which it becomes a scrap. Calculate the depreciation
charges for the period of 4 years assuming 20% was given as depreciation rate using
the Double Decline Balance (DDB) Method.

6. An asset was bought for $20000 with useful life of 5 years
and a salvage value of $1000. Compute its depreciation charge using Sum of
years Digits (SYD) Method.

7. Mr. Wilson bought a set of computers at a price of $250000
each with a scrap value of $15000 after 3 years of usage. Prepare a
depreciation table to calculate the reduction in value of the computers in
straight line basis with variable periods (in years) 4, 5, 6, 7 and 8 and a
scrap values of $5000, $7000, $10000, $13000 and $15000 respectively.

This
is the end of chapter 5 of this online tutorial series. In the

**next chapter (chapter 6)**, I will explain the PMT function and What If Analysis and Excel Powerful tools – Goal Seek, Scenarios and Data tables.
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