Business, Legal & Accounting Glossary
Method that records greater depreciation than straight-line depreciation in the early years and less depreciation than straight-line in the later years of an asset’s holding period.
Any method of cost recovery of a fixed asset that is faster than using the STRAIGHT-LINE DEPRECIATION method. Traditional rationale supports higher maintenance and repair costs in later years. These costs are offset in the early years by the higher depreciation expense, resulting in a level effect on earnings throughout the useful life of the asset. Sometimes accelerated depreciation is used as a tax shelter because of large up-front write-offs with no reduction of cash flow. See several methods of accelerated depreciation described: ACCELERATED COST RECOVERY SYSTEM; SUM-OF-THE-YEARS-DIGITS; DOUBLE-DECLINING BALANCE.
Generally, this method allows greater deductions in the earlier years of an asset and is used to minimise taxable income.
For example; a laptop computer may be expected to have a useful life of 4 years when it is first purchased, however, as a result of new product innovations, it is replaced after just two years.
If the useful life basis had been used, the full cost wouldn’t have been charged to the accounts until the end of the 4th year; By accelerating depreciation the full charge can be made earlier, thus reflecting the short shelflife of high-tech products.
In the US, the accelerated deprecation method may be used to gain tax advantages.
Some companies desire accelerated depreciation and a cessation to the corporate minimum tax.
Many businesses are pushing hard for enhanced accelerated depreciation allowances for plants, machinery and equipment.
Accelerated depreciation is utilised in some countries in order to encourage growth into renewable energy.
The idea of accelerating depreciation was backed by the national lobby group; The National Association of Manufacturers.
Accelerated depreciation is hardly a new concept.
Accelerated depreciation can often provide tax benefits for manufacturing businesses.
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This glossary post was last updated: 10th February, 2020 | 79 Views.