What is the correct order of years used as the numerator when applying the SYD method for an asset with a 5-year life?

What is the correct order of years used as the numerator when applying the SYD method for an asset with a 5-year life?

• A. 5, 4, 3, 2, 1
• B. 1, 2, 3, 4, 5
• C. 2, 3, 4, 5, 1
• D. 4, 3, 2, 1, 5

Answer: (A)

The correct order of years used as the numerator when applying the Sum of the Years' Digits (SYD) method for an asset with a 5-year life is indeed 5, 4, 3, 2, 1. In the SYD method, depreciation is calculated based on the asset’s remaining useful life, where the most significant depreciation expense occurs in the earliest years of the asset's life. The formula involves summing the digits of the years of the asset's lifespan. For a 5-year life, the sum of the digits from 1 to 5 is 15 (1 + 2 + 3 + 4 + 5). The numerator for each year of depreciation is determined by how many years are remaining. Thus, for the asset’s first year, the numerator is 5, for the second year it is 4, and so forth, until the last year, which has a numerator of 1. This reflects the principle that assets tend to lose value more rapidly in their earlier years. Therefore, the correct sequence of years used in the numerators to apply the depreciation method effectively captures this accelerated loss of value.

The correct order of years used as the numerator when applying the Sum of the Years' Digits (SYD) method for an asset with a 5-year life is indeed 5, 4, 3, 2, 1.

In the SYD method, depreciation is calculated based on the asset’s remaining useful life, where the most significant depreciation expense occurs in the earliest years of the asset's life. The formula involves summing the digits of the years of the asset's lifespan. For a 5-year life, the sum of the digits from 1 to 5 is 15 (1 + 2 + 3 + 4 + 5). The numerator for each year of depreciation is determined by how many years are remaining. Thus, for the asset’s first year, the numerator is 5, for the second year it is 4, and so forth, until the last year, which has a numerator of 1.

This reflects the principle that assets tend to lose value more rapidly in their earlier years. Therefore, the correct sequence of years used in the numerators to apply the depreciation method effectively captures this accelerated loss of value.