Accelerated Depreciation

CFA Level I FRA
#1

Is accelerated depreciation multiplied by the carrying value of an asset or its total value?

i.e. if we have an asset worth $25,000 with a useful life of 5 years and a salvage value of $5,000 using an accelerated rate of depreciation of 0% what is the assets NBV in every year?

From my understanding, depreciation expense would be:

Y1: 20,000 x 0.30 = $6,000

Y2: 14,000 x 0.30 = $4,200

Y3: 9,800 x 0.30 = $2, 940

and so on. However in one of the Schweser questions (in calculating the tax base), it calculates accelerated depreciation on the total value for each year i.e.

Y1: 20,000 x 0.30 = $6,000

Y2: 20,000 x 0.30 = $6,000

Y3: 20,000 x 0.30 = $6,000

This doesn’t make any sense to me… Can somebody please explain?

#2

It’s calculated on the carrying value, not on the original value.

On what page did you find the Schweser example you mention?

#3

It was a question on the Schweser Qbank…

#4

I too saw two conflicting calculation methods.

My understanding was - or this is what I figured out but was not very content with this:

  • that for accounting purposes the accelerated method is calculated like: NBV from last year x depr. rate%

  • while for taxation (so when we look for DTL) we use the “accelerated method” by calculating: original value x depr. rate% for each year.

I’m not able to dig out the question but I made a note from it on my flashcard so I’m sure there was a solution like this.