What Does Accelerated Depreciation Mean?
Accelerated depreciation is the method by which higher amounts of depreciation are documented at the beginning of the life of the asset and lower amounts are documented towards the end of the life cycle. The main goal of accelerated depreciation is to lawfully defer taxes for the purpose of financial growth. For example, accelerated depreciation occurs when a vehicle’s value reduces after being damaged during an accident. Even if a vehicle is fully repaired after an accident, its trade value will typically decrease.
Insuranceopedia Explains Accelerated Depreciation
The major benefit of using the accelerated depreciation method is the tax shield it provides. Companies with a large tax burden might choose to use the accelerated depreciation method even if it lessens the income shown on the financial statement. Companies that have used accelerated depreciation will declare fewer earnings in the first years and will seem more gainful in the later years.
The two most common accelerated depreciation methods are the sum-of-year (SYD) and double-declining-balance method (DDB).