Definition of Sum-of-the-Years'-Digits Method (SOYD)

method of accelerated depreciation that results in higher depreciation charges and greater tax savings in the earlier years of a fixed asset useful life than the straight-line depreciation method, where charges are uniform throughout. Sometimes called just sum-of-digits method, it allows depreciation based on an inverted scale of the total of digits for the years of useful life. Thus, for four years of life, the digits 4, 3, 2, and 1 are added to produce 10. The first year's rate becomes 4/10ths of the depreciable cost of the asset (cost less salvage value), the second year's rate 3/10ths, and so on. The effects of this method of accelerated depreciation are compared with the straight-line method in the following illustration, which assumes an asset with a total cost of $1000, a useful life of four years, and no salvage value: