sum-of-the-years'-digits method (SYD) business definition

A system for calculating the annual depreciation expense for a capital asset. The calculation involves identifying the number of years over which the asset will be depreciated and summing all of the numbers while counting back to one. This becomes the denominator in the ratio used to determine annual depreciation. The numerator is the number of years remaining in the life of the asset. For example, suppose an asset has a five-year life. The denominator is 5 + 4 + 3 + 2 + 1, or 15. The first year's depreciation is ⁵/₁₅ , or 0.33 times the asset's cost. Depreciation for the second year is ⁴/₁₅ times the asset's cost.