Accelerated Depreciation

Discipline: Economics

Accelerated Depreciation is a method in financial accounting.

The machinery and other fixed assets of a firm lose value over time. Under the generally-accepted accounted principles, these value losses are recorded annually. Purchase cost of an asset thus gradually 'depreciated.'

In normal depreciation, these value losses are recorded annually 'in equal amounts.' However, many machinery items and other fixed assets depreciate highly in earlier years, but not so afterwards. This is why the accelerated depreciation is needed.

The value losses of the assets that are subject to accelerated depreciation, as opposed to normal depreciation, are written down in larger amounts in the first years. For example, an asset purchased with a value of 1000 dollars, can be depreciated by 200 dollars in 5 years. In such a case, corporate income tax can be deferred by deducting tax profits in the first 5 years. However, an increased taxable income will apply in the following years.

Also see: accumulated depreciation, normal depreciation


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