| A deduction to reflect the gradual loss of value of business property - such as office
equipment, vehicles, buildings, and furniture - as it wears out or becomes obsolete. The
tax law assigns a life to various types of property and your basis in such property is
deducted over that period of time. The tax law specifies the depreciation term for
specific types of assets. If the expense is assumed to be incurred in equal amounts in
each business period over the life of the asset the depreciation method used is straight
line (SL). If the expense is assumed to be incurred in decreasing amounts in each business
period over the life of the asset the method used is said to be accelerated. Two commonly
used variations of the accelerated method of depreciating an asset are the sum-of-years
digits (SYD) and the double-declining balance (DDB) methods. Frequently, accelerated
depreciation is chosen for a business' tax expense but straight line is chosen for its
financial reporting purposes.
See also:
Useful Life
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