Accelerated Depreciation | Push Digits Chartered Accountants

Accelerated Depreciation

Accelerated Depreciation

Accelerated depreciation can be defined as a depreciation method in which the cost of an asset is allocated over its useful life at a much faster rate when compared with the traditional straight-line method. The accelerated depreciation method allows more depreciation to be charged in the earlier years of an asset’s life and less depreciation in the later years of an asset’s useful life. It should be noted that the total amount of depreciation to be allocated over the asset’s useful life will remain the same irrespective of the depreciation method used. It can be said that the only difference between the said depreciation methods is the timing of the depreciation.

Most Commonly used Accelerated Depreciation Methods

The most commonly used accelerated depreciation methods are as follows:

  • Sum of the year’s digits method
  • Double declining balance method

Sum of the year’s digits method

It is a depreciation method that is used for accelerating the recognition of depreciation. As per this method, a fraction is calculated by dividing an asset’s remaining useful life by the sum of the year’s digits. This fraction is then applied to the depreciable value of the asset to calculate the depreciation expense for a specific period.

The formula used for calculating depreciation expense under the said method is as follows:

Depreciation Expense = (Asset’s remaining useful life/ Sum of the year’s digits) x Asset’s Depreciable value

The formula used for calculating the sum of the year’s digits is as follows:

Sum of the year’s digits = n(n+1)/ 2

In the above formula, n stands for the number of years of the asset’s useful life

Example of the Sum of the Year’s Digits Method

ABC company purchases an equipment for $50,000 with a useful life of 4 years. The calculation of the depreciation expense under the said method would be as follows:

Year Depreciable Base ($) Remaining Useful Life Depreciation Fraction Depreciation Expense ($) Book Value ($)
1 50,000 4 4/10 20,000 30,000
2 50,000 3 3/10 15,000 15,000
3 50,000 2 2/10 10,000 5,000
4 50,000 1 1/10 5,000

Double Declining Balance Method

It is a depreciation method that is used for accelerating depreciation. It is commonly used for depreciating fixed assets more heavily in the early years.

The formula used for calculating depreciation under the said method is as follows:

Double Declining Balance Method = 2 x Straight-line depreciation rate x Depreciable value at the start of the period

Example of the Double Declining Balance Method

ABC Company purchases a machine for $50,000 with a useful life of 4 years. The calculation of the depreciation expense under the said method would be as follows:

Year Book Value at the Beginning  of the year ($) Depreciation Rate Depreciation Expense ($) Book Value at the Year End ($)
1 50,000 25% 25,000 25,000
2 25,000 25% 12,500 12,500
3 12,500 25% 6,250 6,250
4 6,250 25% 3,125 3,125
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