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What is Accelerated Depreciation?Accelerated Depreciation (AD) is an approach (consisting of a number of methods) to calculate depreciation in which a higher amount or percentage of a fixed asset's value is written off in the early part of its life than in later parts. So in simple terms, AD methods allow faster write-offs than the straight line depreciation method (which spreads the cost evenly over the life of an asset). AD is used for both financial purposes and tax purposes:
Accounting BackgroundCompanies typically have to pay corporate income taxes on profit they make. This profit basically equals to revenues minus expenses. The higher the expenses, the lower the profit, the lower the corporate income tax for that year. Depreciation is one type of expenses, as are also: salaries, materials, amortization, etc. Suppose a company buys a capital asset (any asset which can be used for many years, for example a machine or a computer), it could be willing to take the entire cost as an expense immediately in order to decrease the corporate income tax for that year. However firms in most jurisdictions must amortize the cost of assets over some period, usually an approximation of the useful life of the asset. Why Accelerated Depreciation? Benefits
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