Definition of Accelerated Depreciation: When goods are written off more quickly than usual to help reduce companies tax bills and encourage investment.
Depreciation refers to how the value of a firm’s capital stock reduces over time.
For example, if a firm invests in a factory costing £1 million. Then it may predict a depreciation of 10% a year. Because machines wear out and become less up to date. After one year, the firm values its capital stock at £100,000 less than original £1 million.
If it wished to have accelerated depreciation it may change the predicted depreciation from 10% a year to 25% a year.
Accelerated depreciation means that a company profits net of depreciation are lower. Therefore, its total tax payments will be lower.
A government may allow accelerated depreciation hoping that the lower tax bill will encourage investment. Though a firm may just prefer to have a lower tax bill.
Published 28 November 2014, Tejvan Pettinger. www.economicshelp.org