What is Accelerated Depreciation?
Accelerated depreciation is any depreciation method that allocates a larger portion of an asset’s cost to early years of its useful life and a smaller portion to later years, reflecting faster economic obsolescence or wear in the early period.
How It Works
- Double declining balance (DDB): rate = 2 × straight-line rate, applied to declining book value.
- Sum-of-the-years’ digits (SYD): fraction with remaining life in numerator.
- Higher depreciation expense in early years reduces taxable income earlier.
- Total depreciation over the asset’s life is the same as straight-line.
Saudi Context
ZATCA’s tax depreciation rates often deviate from book depreciation, with accelerated rates available for specific assets like manufacturing equipment, IT systems, and Vision 2030 strategic-sector capital expenditure. The book vs. tax depreciation gap creates deferred tax assets or liabilities tracked under IAS 12.
Example
A Saudi manufacturer buys equipment for SAR 100,000, 5-year life, no salvage. DDB year 1 = 2 × (1/5) × 100,000 = SAR 40,000. Year 2 = 40% × (100,000 – 40,000) = SAR 24,000.