accelerated depreciation

Examples of accelerated depreciation in the following topics:

• Methods of Depreciation

  • 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 .
  • Straight-line depreciation has been the most widely used depreciation method in the U.S. for many years due to its simplicity.
  • 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.

• Impact of Depreciation Method

  • The journal entry for this transaction is a debit to Depreciation Expense for 1,000 and a credit to Accumulated Depreciation for 1,000.
  • First, calculate the depreciation per unit:
  • 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.
  • The depreciation method used to depreciate a car calculates an expense that reduces income.

• 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.
  • A depreciation method commonly used to calculate depreciation expense is the straight line method.
  • Depreciation reflects the wear and tear experienced by an asset in use.

• Factors for Calculating Depreciation

  • There are four main factors to consider when calculating depreciation expense:
  • The journal entry for this transaction is a debit to Depreciation Expense for $1,000 and a credit to Accumulated Depreciation for $1,000.
  • First, calculate the depreciation per unit:
  • Second, calculate the depreciation expense for year 5:
  • To calculate depreciation using the double-declining method, its possible to double the amount of depreciation expense under the straight-line method.

• Adjustments

  • Depreciation @ $20/monthAccumulated Depreciation 20, Depreciation Expense 20; Assets(-)=Equity(-)Augusta.
  • Depreciation @ $20/monthAccumulated Depreciation 20, Depreciation Expense 20; Assets(-)=Equity(-)c.
  • Depreciation on studio equipment (500 for 25 months = 20/month)Depreciation expense 20 Accumulated Depreciation 20Augusta.
  • Depreciation on studio equipment (500 for 25 months = 20/month)Depreciation expense 20 Accumulated Depreciation 20c.
  • Depreciation on studio equipment (500 for 25 months = 20/month)

• Reporting Assets

  • Depreciation is a measure of how property values decrease.
  • Depreciation does not apply to assets that do not lose value over time, such as land.
  • Depreciation can be calculated different ways for different types of asset.
  • Finally a business must choose a depreciation method.
  • Instead, it will record a negative asset balance called accumulated depreciation.

• Sale

  • When the sale takes places, a journal entry is recorded that (1) updates depreciation expense, (2) removes the asset and its accumulated depreciation account off the balance sheet, (3) increases cash or other asset with the amount of proceeds received, and (4) records a gain or loss on the sale.
  • At the time of disposal, depreciation expense should be recorded to update the asset's book value.
  • A journal entry is recorded to increase (debit) depreciation expense and increase (credit) accumulated depreciation.
  • Depreciation expense is reported on the income statement as a reduction to income.
  • The increase in the accumulated depreciation account reduces the asset to its current book value .

• Cost of Improvements

  • Since the cost of the improvement is capitalized, the asset's periodic depreciation expense will be affected, along with other factors used in calculating depreciation.
  • When the cost of a capital improvement is capitalized, the asset's historical cost increases and periodic depreciation expense will increase.
  • The change in periodic depreciation expense also can be impacted by the method used to calculate depreciation and may also have federal income tax consequences.

• Valuing Repairs, Maintenance, and Additions

  • However, since there is no visible, tangible addition to, or improvement in, the quality of services, they charge the expenditures to the accumulated depreciation account, thus reducing the credit balance in that account.
  • Such expenditures cancel a part of the existing accumulated depreciation; firms often call them extraordinary repairs.
  • This asset had been depreciated using the straight-line method for one year and had a book value of USD 30,000 (USD 40,000 cost—USD 10,000 first-year depreciation) at the beginning of 2010.
  • The charge for depreciation should have remained at USD 10,000 for each of the next three years.
  • With the incorrect entry, however, depreciation increases.

• Cost of Buildings

  • Unlike land, buildings are subject to depreciation or the periodic reduction of value in the asset that is expensed on the income statement and reduces income.
  • Since buildings are subject to depreciation, their cost is adjusted by accumulated depreciation to arrive at their net carrying value on the balance sheet.
  • For example, on Acme Company's balance sheet, their office building is reported at a cost of $150,000, with accumulated depreciation of $40,000.