Accelerated Depreciation

What Does Accelerated Depreciation Mean?

Accelerated depreciation is a method in which higher amounts of depreciation are recorded at the beginning of an asset’s life and lower amounts are recorded as it ages. The primary goal of accelerated depreciation is to legally defer taxes to support financial growth. For example, accelerated depreciation applies when a vehicle’s value decreases after being damaged in an accident. Even if the vehicle is fully repaired, its trade-in value will typically be lower than before the accident.

Insuranceopedia Explains Accelerated Depreciation

The main benefit of using the accelerated depreciation method is the tax shield it provides. Companies with a large tax burden may choose to use accelerated depreciation, even though it reduces the income shown on the financial statement. Companies that apply this method will report lower earnings in the early years, making them appear less profitable, but they will show higher earnings in later years.

The two most common accelerated depreciation methods are the Sum-of-Years-Digits (SYD) method and the Double-Declining-Balance (DDB) method.