As the term “accelerated depreciation” may already suggest, when using this calculation technique, the annual depreciation amounts increase during each of the asset’s recovery period years. However, this depreciation method is rarely used, as it is traditionally only suited for facilities, which generate greater income year after year (wineries).
The declining balance method of depreciation is closely related to this. In this method, the amounts that you subtract from the asset’s value are continuously reduced over the course of its recovery period. Annual depreciation values therefore start at a higher level and then gradually decrease. This method, primarily aiming to promote investment, was temporarily approved for this very purpose during the global financial crisis of 2008.
The declining balance method of depreciation, which sets a fixed depreciation rate (20%, for instance) on the respective book value, follows a geometric depreciation sequence in the process of calculation. In addition to this, there is also an arithmetic depreciation sequence, in which the book value, as its name suggests, is determined using a declining numerical sequence.