Accelerated Depreciation
What is Accelerated Depreciation
Accelerated depreciation is when depreciation is accelerated in the short term.
![AD diag 1](https://seeaccountingnow.online/wp-content/uploads/2020/03/AD-diag-1.jpg)
How it Works
Most businesses own long term assets such as equipment.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-2.jpg)
These assets will lose value over time.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-3.jpg)
This loss of value is known as depreciation.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-4.jpg)
You need to record each year’s loss of value in a depreciation expense account.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-5.jpg)
Here, you have a choice of depreciation methods.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-6.jpg)
Straight Line Method
You can use the straight line method of depreciation.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-7.jpg)
With this method, you base the depreciation rate on the asset’s depreciable value.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-8.jpg)
Depreciable value is the difference between the asset’s original value and its scrap or salvage value.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-9.jpg)
Scrap value is an estimate of what the asset will be worth at the end of its useful life.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-10.jpg)
The difference will show how much value the asset will lose over its useful life.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-11.jpg)
Once calculated, you apply a depreciation rate to the depreciable value.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-12.jpg)
This then becomes the depreciation amount for each year of the asset’s useful life.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-13.jpg)
With this method, the asset depreciates by the same amount, year after year.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-14.jpg)
In other words, the asset’s value goes down in a straight line.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-15.jpg)
Accelerated Depreciation
Alternatively, you can use the accelerated depreciation method.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-16.jpg)
With this method, you take the asset’s full, current book value.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-17.jpg)
Then you apply a percentage rate to that value.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-18.jpg)
This will provide the depreciation rate for the first year.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-19.jpg)
The following year, you take the asset’s reduced book value.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-20.jpg)
Then you apply the same depreciation rate again.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-21.jpg)
This will now provide the depreciation rate for that year, as well.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/AD-diag-22.jpg)
You continue depreciating the asset in this manner until you reduce it to its scrap value.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ad23.jpg)
With the accelerated depreciation method, you apply depreciation to an ever decreasing book value.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ad24.jpg)
Because of this, the depreciation rate starts off high.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ad25.jpg)
Then it becomes progressively lower over time.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ad26.jpg)
Regardless of the method used, the asset’s value decreases at the same amount in total, over time.
![](https://seeaccountingnow.online/wp-content/uploads/2020/04/ad27.jpg)
© R.J. Hickman 2020