**Accelerated Depreciation Methods**

Another way of accounting for depreciation expense is to use one of the accelerated methods. These include the Sum of the Year’s Digits and the Declining Balance (either 150% or 200%] methods. These accelerated depreciation methods are more conservative and, in most cases, accurate. They assume that an asset loses a majority of its value in the first several years of use.

**Sum of the Years Digits**

To calculate depreciation charges using the sum of the year’s digits method, take the expected life of an asset (in years) count back to one and add the figures together. Example:

10 years useful life = 10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 Sum of the years = 55

In the first year, the asset would be depreciated 10/55 in value (the fraction 10/55 is equal to 18.18%), 9/55 (16.36%) the second year, 8/55 (14.54%) the third year, etc. Going back to our example from the straight-line discussion, a $5,000 computer with a $200 salvage value and 3 years useful life would be calculated as follows:

3 years useful life = 3 + 2 + 1 Sum of the years = 6

Taking $5,000 - $200 we have a depreciation base of $4,800. In the first year, the computer would be depreciated by 3/6ths (50%), the second year, by 2/6 (33.33%) and the third and final year by the remaining 1/6 (16.67%). This would have translated into depreciation charges of $2,400 the first year, $1,599.84 the second year, and $800.16 the third year. The straight-line example would have simply charged $1,600 each year, distributed evenly over the three years useful life.

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*This page is part of Investing Lesson 4 - How to Read an Income Statement. To go back to the beginning, see the Table of Contents.*