Accelerated Depreciation Effects

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Accelerated depreciation does increase the value of an investment, however before it is explained how, it is important to define and point out the relevance of depreciation, book value, market value, inter-period tax allocation and deferred tax liability. Depreciation is a non-cash expense that lowers the value of assets over a period of time. Assets are depreciated for two reasons – wear and tear and old models becoming obsolete. Depreciation’s relevance to accelerated depreciation is that accelerated depreciation is taking base depreciation and accelerating it to report more depreciation earlier in the depreciation cycle. Book value is the value that an asset is on the balance sheet. To calculate the book value you take the cost of the asset minus accumulated depreciation. The relevance of book value to accelerated deprecation is that accelerated depreciation can vary the book value of an asset by having more depreciation counted earlier in the depreciation cycle. Market value is an estimate of what would be paid for your asset if the sale was fair. It also refers to the worth of the asset. The relevance of market value to accelerated depreciation is that market valuation through accelerated depreciation creates a market for used assets and their sell until they are valueless. Inter-period tax allocation becomes present when there are differences between income tax rules and GAAP rules. An example of this is shown in inter-period tax allocations relevance to depreciation. Depreciation for income tax is based on income tax code and requires that equipment be depreciated over 7 years. GAAP says that the equipment can be depreciated over the life of the equipment while it is functional. The differences between timing make inter-period tax allocations. Deferred tax liability shows that an organization will sometime in the future pay more tax because of an action in

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