To calculate sum of years digits with switch to SL depreciation

The sum of years digits with a switch to straight line is a formula in which sum of years digits is used for the first portion of an asset's life, then LN switches to the straight line formula to depreciate the asset to its salvage value based on its remaining life. The switch occurs in the first period in which the remaining value calculation of the straight line results in a larger depreciation amount than the sum of years digits calculation.

If a depreciation method is applied while the Switch to SL checkbox is selected in the Depreciation Methods (tffam7510m000) details session, the normal straight line calculation is applied independent of the SL Switch Criteria defined in the FAM Parameters (tffam0500m000) session. The straight-line calculation with remaining-life/remaining-values is not applied, because the large accumulated depreciation at the beginning of the life causes the RL/RV straight-line amount to be reduced, so that the switch never occurs.

The following formulas are used:

  • US tax books 

    DF = (cost - salvage - sec179) * (business percentage/100)
    NBV = (cost - salvage - sec179) * (business percentage/100) - AD

  • Other books 

    DF = cost - salvage
    NBV = cost - salvage - AD

  • Sum of Years Digits 

    depreciation = DF * (remaining years in life/sum of years)

  • Normal Straight Line 

    daily depreciation = NBV * (days depreciated/days in fiscal year)
    periodic depreciation = NBV * (periods depreciated/period in fiscal year)

where:

DF = Depreciation Factor

NBV = Net Book Value

AD = Accumulated Depreciation

For MACRS and ACRS the salvage value is not applied to depreciation of US tax and commercial books.

Note: If the asset for which you are calculating depreciation contains an averaging convention, LN adjusts the depreciation expense for the first halfyearly, quarterly, or monthly calculation. This formula is useful if you want to maximize the tax deduction for the depreciation expense on your company's income tax returns. This method lets you book a large portion of an asset's depreciation in the early years of its life, then depreciate it to its salvage value.
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