## Frequently Asked Questions on Sum-of the year's Digits Depreciation

### What is depreciation?

Depreciation is the general term used to refer to the decline in the value of an asset over a long period.

It is the process of allocating the cost of an asset throughout its useful life.

### What are the types of depreciation?

Straight line depreciation, reducing balance depreciation, double declining balance depreciation, and sum-of-the-years' digit depreciation are the four main types of depreciation.

Only straight-line depreciation is not an accelerated method of the depreciation out of the four mentioned above.

### What is sum-of-the-years digit depreciation?

The sum of the years' digit depreciation is an accelerated method of depreciation in which the depreciation rate for each year is calculated by dividing the asset's remaining useful years by the sum of the useful year's digits.

For instance, if an asset has an estimated 3-year useful life, the year's digits will add up to 1+2+3=6.

The remaining useable years(3) divided by the total number of years will determine the depreciation rate for the first year of depreciation (6). Depreciation will therefore be 3/6 for the first year

For the second year, the depreciation rate will be the remaining useful years(2) divided by the sum of the years (6). Therefore, depreciation for the second year will be 2/6.

The same pattern will be followed for the third year, where the depreciation rate will be 1/6.

### What does the asset's useful life mean in depreciation?

In depreciation, useful life is defined as the number of years that an asset is expected to be used before it is fully depreciated.

In other words, the expected number of years that an asset will provide service and generate income for the company is its useful life.

What is scrap value?

Scrap value is the worth of an asset at the end of its useful years.

It is the price at which a business anticipates selling an asset once its useful life has passed.

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