What is Accelerated Depreciation?

//What is Accelerated Depreciation?
What is Accelerated Depreciation? 2017-09-30T03:40:25+00:00

Definition: Accelerated depreciation is a method of allocating larger portions the cost of an asset in earlier years of the asset’s life and less in the later years of useful life. In other words, an accelerated depreciation method does exact what the name implies. It front-loads larger amounts of depreciation on the beginning years and smaller amounts in later years. This is opposed to the straight-line method that allocates an equal amount of depreciation every year throughout the asset’s useful life.

What Does Accelerated Depreciation Mean?

What is the definition of accelerated depreciation? The rational behind an accelerated method is that assets are generally more useful when they are new. Thus, the costs should be allocated according to the actual asset usage instead of equally throughout the useful life. This makes sense since depreciation isn’t a way to “expense” an asset. It’s a method for allocating the asset’s cost of benefits.

Example

Take a computer for example. The computer might have a useful life of five years, but it doesn’t really work that well in the last two year. It’s really just kind of getting by in the last two years until management can get the budget to purchase new machines. You know what I’m talking about. : )

It doesn’t make much sense to allocate the same amount of costs in year 1 when the computer is perfectly new and year 5 when the computer barely works. The accelerated depreciation method takes care of this discrepancy. A larger portion of depreciation is allocated to the first few years and a smaller portion is allocated to the last few years. In this way, the accelerated method follows the matching principle because it matches the benefit of the asset with its costs. The company gets more benefits from the computer in the early years than in the later years. Thus, it recognizes more of the cost in those years.

The declining balance method and double declining balance method are both good examples of an accelerated system. Both of them assign a higher percentage of the asset cost to the beginning years of the asset’s life and assign a lower percentage of the costs to the ending years.

Summary Definition

Define Accelerated Depreciation: Accelerated depreciation means a method of assigning a higher percentage of an asset’s cost when the asset is newer and a lower percentage when the asset is older.