Business Math BUSN 1033

accelerated depreciation

A higher amount of depreciation is recorded in the early years and a lower amount in the later years

Accumulated Depreciation

Amount of depreciation that has accumulated on plant and equipment assets.

Asset Cost

Amount the company paid for the asset (also known as historical cost)

declining balance method

An accelerated method of depreciation. The depreciation each year is calculated by book value beginning each year times the rate.

Salvage Value (Residual Value)

Cost - accumulated depreciation

Units of Production Method

Depreciation method that estimates amount of depreciation based on usage.

Trade-in value

Estimated value of a plant asset after depreciation is taken (or end of useful life).

straight-line method of depreciation

Method of depreciation that spreads an equal amount of depreciation each year over the life of the assets.

straight-line rate

One divided by number of years of expected life.

Modified Accelerated Cost Recovery System (MACRS)

Part of Tax Reform Act of 1986 that revised depreciation schedules of ACRS. Tax Bill of 1989, 2010 updates MACRS.

Depreciation schedule

Table showing amount of depreciation expense, accumulated depreciation, and book value for each period of time for a plant asset.

residual value (salvage value)

estimated value of a plant asset after depreciation is taken (or end of useful life).

estimated useful life

time period for which a business expects to use an asset

Depreciation

A decrease or loss in value

General Depreciation System (GDS)

The most commonly used modified accelerated cost recovery system (MACRS) for calculating depreciation. A general depreciation system uses the declining-balance method to depreciate personal property. I: The declining-balance method involves applying the depreciation rate against the non-depreciated balance. For example, if an asset that costs $1,000 is depreciated at 25% each year, the deduction is $250.00 in the first year and $187.50 in the second year, and so forth.

Depreciation expense

The portion of the cost of a fixed asset that is recorded as an expense each year of its useful life.

Accelerated Cost Recovery System (ACRS)

a depreciation method under U.S. tax law allowing for the accelerated write-off of property under various classifications. It was enacted in 1981 for assets put in service from 1981 through 1986.

Book Value

cost - accumulated depreciation