Definition of accelerated depreciation
Accelerated depreciation method is a depreciation method that charges major portion of the cost of assets in earlier years and minor portion in later years of assets life. This depreciation method defers tax liabilities in earlier years of assets life since higher depreciation expense reduces taxable income.
The logic behind accelerated depreciation method is that an asset produces more products and generates more revenue in earlier years. Thus, depreciation should be charged according to the productivity of assets.
There are several accelerated depreciation methods. Widely used accelerated depreciation methods are Double declining balance method, Sum of the years’ digit method.
In the USA, a business can apply accelerated depreciation method for computing income tax and straight line method for valuing assets in financial statements. It is allowed by US tax regulations. This will likely result in Deferred income tax as a liability in organizations FS.