Accelerated Amortization Double Declining Balance Accelerated Amortization Capital

Accelerated Amortization Double – Declining Balance

Accelerated Amortization • Capital Assets can depreciate at different rates because of high or low usage. – Factory A uses its equipment 24 hours a day. Factory B uses its equipment 8 hours a day, 4 days a week. – Obviously, Factory A’s equipment will depreciated faster. • Capital Assets can depreciate rapidly because of a high degree of technological change and rapid obsolescence. – Computer Technology is probably the best example of this. • Accelerated Amortization better matches revenues to expenses, often capital assets will provide the most benefit to an organization in the first few years of operation

Double-Declining Balance Method • The difference between the Double Declining Balance and Declining Balance method, is that the yearly depreciation rate is multiplied by a amortization multiplier (in this case 2). Net Book Value X (Multiplier x Amortization Rate) = Amortization Expense

Example • Ashley buys a new industrial robot to be used on the production line, it was purchased for $110, 000 and has a yearly amortization rate of 20%. • This machine will be used 24 hours a day, 7 days a week, so Ashley has decided to use the Double Declining Balance Method to calculate the yearly amortization. • Calculate the yearly amortization for the first 3 years

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