accelerated-depreciation method

Examples of accelerated-depreciation method in the following topics:

• Methods of Depreciation

  • There are various methods that can calculate depreciation expense for the period; the method used should reflect the asset's business use.
  • Some of the most common methods used to calculate depreciation are straight-line, units-of-production, sum-of-years digits, and double-declining balance, an accelerated depreciation method.
  • The Modified Accelerated Cost Recovery System (MACRS) is the current tax depreciation system used in the United States .
  • Sum-of-years' digits is a depreciation method that results in a more accelerated write-off than straight line, but less accelerated than that of the double-declining balance method.
  • The double-declining balance method is a type of accelerated depreciation method that calculates a higher depreciation charge in the first year of an asset's life and gradually decreases depreciation expense in subsequent years.

• Depreciation

  • Methods of computing depreciation may vary by asset for the same business.
  • Depreciation methods that provide for a higher depreciation charge in the first year of an asset's life and gradually decrease charges in subsequent years are called accelerated depreciation methods.
  • One popular accelerated method is the declining-balance method.
  • Sum-of-years' digits is a depreciation method that results in a more accelerated write-off than straight line, but less than the declining-balance method.
  • Under this method, annual depreciation is determined by multiplying the depreciable cost by a schedule of fractions.

• Impact of Depreciation Method

  • Sum-of-years digits is a depreciation method that results in a more accelerated write off of the asset than straight line but less than double-declining balance method.
  • Double-declining balance is a type of accelerated depreciation method.
  • To calculate depreciation using the double-declining method, its possible to double the amount of depreciation expense under the straight-line method.
  • The depreciation method used to depreciate a car calculates an expense that reduces income.
  • Explain how the choice of depreciation method affects a company's revenue

• What Is Depreciation?

  • Depreciation expense affects the values of businesses and entities because the accumulated depreciation disclosed for each asset will reduce its book value on the balance sheet.
  • Depreciation expense also affects net income.
  • Depreciation expense can be calculated using a variety of methods.
  • The depreciation method chosen should be appropriate to the asset type, its expected business use, its estimated useful life, and the asset's residual value.
  • A depreciation method commonly used to calculate depreciation expense is the straight line method.

• Factors for Calculating Depreciation

  • A company is free to adopt the most appropriate depreciation method for its business operations.
  • Accounting theory suggests that companies use a depreciation method that closely reflects the operations' economic circumstances.
  • Here is an example of how to calculate depreciation expense under the straight-line method.
  • To calculate depreciation using the double-declining method, its possible to double the amount of depreciation expense under the straight-line method.
  • Summarize how a company would determine the appropriate depreciation method to use

• Depreciation

  • Depreciation refers to two very different but related concepts: the decrease in value of assets (fair value depreciation), and the allocation of the cost of assets to periods in which the assets are used (depreciation with the matching principle).
  • Depreciation is any method of allocating net cost to those periods expected to benefit from use of the asset.
  • Methods of computing depreciation may vary by asset for the same business.
  • Methods may be specified in the accounting or tax rules of a country.
  • Several standard methods of computing depreciation expense may be used, including:

• Depreciation

  • There are several methods for achieving this goal.
  • The straight-line method of depreciation reduces the book value of an asset by the same amount each period.
  • The declining balance method of depreciation provides for a higher depreciation expense in the first year of an asset's life and gradually decreases expenses in subsequent years.
  • Under this method, the annual depreciation expense is found by multiplying book value of the asset each year by a fixed rate.
  • Activity depreciation methods are not based on time, but on a level of activity.

• Reporting Assets

  • Depreciation is a measure of how property values decrease.
  • Depreciation can be calculated different ways for different types of asset.
  • Finally a business must choose a depreciation method.
  • The most common depreciation method type is "straight-line," where the depreciation rate is calculated by subtracting the asset's residual value from its acquisition cost and dividing the result by its useful life.
  • Instead, it will record a negative asset balance called accumulated depreciation.

• Free Cash Flow

  • There are four different methods for calculating free cash flows.
  • Free cash flows = EBIT x (1 - Tax rate) + Depreciation & Amortization - Changes in Working Capital - Capital Expenditure
  • Where Net Capital Expenditure (CAPEX) = Capex - Depreciation & Amortization and Tax Shield = Net Interest Expense X Effective Tax Rate
  • Cash flows from operations = Earnings before Interest and Tax x (1-Tax rate) + Depreciation & Amortization - Changes in Working Capital
  • The net income measure uses depreciation, while the free cash flow measure uses last period's net capital purchases.

• Other Expenses

  • Methods of computing depreciation may vary by asset for the same business.
  • Methods and lives may be specified in accounting and/or tax rules in a country.
  • Several standard methods of computing depreciation expense may be used, including fixed percentage, straight line, and declining balance methods.
  • Depreciation expense generally begins when the asset is placed in service.
  • Amortization is generally known as depreciation of intangible assets of a firm.