Tag Archives | modified accelerated cost recovery system

Accelerated Method of Depreciation

See Also:
Straight Line Depreciation
Fixed Assets – NonCurrent Assets
Balance Sheet Projections

Accelerated Method of Depreciation Definition

An accelerated method of depreciation definition is any depreciation method that expenses the cost of a tangible asset over its useful life at a rate faster than the straight-line method of depreciation. Furthermore, these methods are generally used to take into account greater deductions that are made over the first few years of an asset. In addition, it is used to minimize taxable income. This is different from the straight-line method because it adds greater depreciation over the first years of an asset. At the same time, the straight-line method spreads the cost evenly in throughout the asset’s life.

Accelerated Method of Depreciation Examples

Examples of accelerated methods of depreciation include the following:

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Accelerated Method of Depreciation, Accelerated Method of Depreciation Definition

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Accelerated Method of Depreciation, Accelerated Method of Depreciation Definition

Originally written by  on July 23, 2013

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Modified Accelerated Cost Recovery System (MACRS)

See Also:
Straight Line Depreciation
Double Declining Depreciation Method
Accelerated Method of Depreciation
Financial Accounting Standards Board (FASB)
Generally Accepted Accounting Principles

Modified Accelerated Cost Recovery System Definition

The modified accelerated cost recovery system (MACRS) method of depreciation assigns specific types of assets to categories with distinct accelerated depreciation schedules. Furthermore, MACRS is required by the IRS for tax reporting but is not approved by GAAP for external reporting.

MACRS Depreciation Calculation

To calculate depreciation for an asset using MACRS, first determine the asset’s classification. Then use the table (below) to find the appropriate depreciation schedule.

When using MACRS, an asset does not have any salvage value. This is because the asset is always depreciated down to zero as the sum of the depreciation rates for each category always adds up to 100%. When calculating depreciation expense for MACRS, always use the original purchase price of the asset as the depreciable base for each period. Note that you depreciate each category for one year longer than its classification period. For example, depreciate an asset classified under 3-Year MACRS for 4 years. Then depreciate an asset classified under 5-Year MACRS for 6 years, and so on.

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MACRS Example

For example, an asset purchased for $100,000 that falls into the 3-Year MACRS category shown below, would be depreciated as follows:

YearDepreciation Rate     Depreciation Expense
  1     33.33%         $33,330     (33.33% x $100,000)
  2     44.45%         $44,450     (44.45% x $100,000)
  3     14.81%         $14,810     (14.81% x $100,000)
  4      7.41%          $7,410     (7.41%   x $100,000)

MACRS Depreciation Table

Below is the table for Half-Year Convention MACRS for 3, 5, 7, 10, 15, and 20 year depreciation schedules.

Depreciation Rates (%)

Year    3-Year    5-Year   7-Year   10-Year  15-Year  20-Year 

  1     33.33     20       14.29    10       5        3.75
  2     44.45     32       24.49    18       9.5      7.219
  3     14.81     19.2     17.49    14.4     8.55     6.677
  4      7.41     11.52    12.49    11.52    7.7      6.177
  5               11.52     8.93     9.22    6.93     5.713
  6                5.76     8.92     7.37    6.23     5.285
  7                         8.93     6.55    5.9      4.888
  8                         4.46     6.55    5.9      4.522
  9                                  6.56    5.91     4.462
 10                                  6.55    5.9      4.461
 11                                  3.28    5.91     4.462
 12                                          5.9      4.461
 13                                          5.91     4.462
 14                                          5.9      4.461
 15                                          5.91     4.462
 16                                          2.95     4.461
 17                                                   4.462
 18                                                   4.461
 19                                                   4.462
 20                                                   4.461
 21                                                   2.231

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Modified Accelerated Cost Recovery System

Modified Accelerated Cost Recovery System

MACRS and the IRS

For more detailed information regarding MACRS, go to: irs.gov/publications

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