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Accelerated Depreciation Method vs Straight-Line Method: A Comparative Analysis

   

Added on  2019-09-24

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Essay 1Accelerated Depreciation
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Introduction This study aim is to provide a description of the topic “Accelerated Depreciation”. Itprovides description of benefits of accelerated depreciation to the companies. It includesdifferent benefits such as enable to take higher open deduction, assets replacement, minimizededuction and etc. Different limitations are also evaluated in the study such as recaptureddepreciation, and consider the clear preference.
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Accelerated DepreciationDepreciation is the method of accounting that allocates the cost of a tangible asset over theuseful life and this method is used to decrease value in accounts. There is decrease in thevalue as there are not suitable market conditions. Moreover, in terms of businesses itdepreciates the long-term assets for the purpose of tax and accounting. In terms of accountingpurpose the expense of depreciation does not show the cash transaction but it represents howmuch the assets value the business has taken into consideration over the period. The assetsinclude such as equipment, machinery, currency and etc. Depreciation comprises of differentmethods such as accelerated depreciation method, straight-line depreciation method and etc.According to the views of Kahn (2013), accelerated depreciation is the method of depreciationthat enables to make decrement in the value of long-assets. It has been depicted thatreplacement cost should be equal when there is end of the assets. Accelerated depreciation isdefined by different authors differently. In the views of Gravelle (2011), it is defined as themethod through which higher depreciation deduction is produced in terms of starting years ofproject. Jackson et al (2010), defines accelerated depreciation as the “allowance of stimulusinvestment”. In terms of purposes of tax the depreciation method provides the way ofdeferring corporate income taxes by making deduction in the taxable income for the current
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years. Thus, it makes increase in the taxable income in future years. There are manycompanies that pay taxes on profit by decreasing revenue from expenses. It has beenevaluated that expense if of different types such as salary paid to workers, inputs cost,depreciation and amortization. In financial accounting as well as tax accounting the companyis not able to claim the entire capital asset cost. In terms of government it providesopportunity to postpone taxes if there are specific policies reasons to encourage thecompanies. The government has increased accelerated depreciation method in time of stressof economic. Moreover, in the companies, there was an issue in measuring the change in the 20th centurydue to this it leads to negative results. Thus, to overcome this issue there was establishment ofaccelerated depreciation. It was developed in order to decrease the value of the assets on thebalance sheet. In the past time also this method has been adopted by the companies as it helpsthe company to decrease the value of the assets to be at the rate in which it is expected. In addition, there are different benefits of using accelerated depreciation. It is described asbelow:Minimizes start-up deductions
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