Accelerated Depreciation Taxation System:
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Anmol Kaur.
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Anmol Kaur
Accelerated Depreciation Taxation System:
Whenever a company buys an asset, it assumes the asset has a total life for which the asset will serve the company.
It estimates the total depreciation value of the asset by subtracting its estimated dumping price from its purchase value. This depreciation is written off as an expense (in instalments) over the period of asset’s life as an expense to the company.
Accelerated Depreciation Taxation System allows the company to write off larger part of the asset’s depreciation during initial years of the asset’s life, thus increasing the expenses and reducing operating profits on which the company has to pay tax. However, later the tax liability could increase.
Advantages:
- Good system for new businesses having short term cash problems. The money saved on taxes can be reinvested to grow the business.
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