Accelerated depreciation is an accounting term referring to various depreciation methods in which the periodic depreciation expense charged to an asset reduces gradually as the asset becomes older. In other words, there is negative acceleration in depreciation expense of a given asset provided other things remain constant. It is interesting to note that this definition does not include positively accelerated depreciation. This is because there are no common depreciation methods in which depreciation charge increases as the asset becomes older.
The logic behind charging higher depreciation in early life and lower in later life of an asset is that when assets are newer they are more productive therefore charging higher depreciation during the beginning of useful life of an asset results in more accurate accounting information. Accelerated depreciation methods generally follow the matching principle of accounting better than straight-line method.
There are various techniques for depreciating assets with acceleration most common of which are declining-balance (also known as reducing-balance) and double-declining-balance depreciation methods. In declining-balance method, depreciation is calculated as the product of: predetermined acceleration factor, straight-line depreciation rate and asset's carrying value. Since the carrying value declines in each accounting period, there is negative acceleration in depreciation expense. Double-declining balance method is a type of declining-balance method in which the acceleration factor used is 2. Sum-of-the-years-digits and MACRS are other examples of accelerated depreciation method but these are not so common. MACRS is used for tax purposes.
Written by Irfanullah Jan