A method of determining the reduction in an asset’s value over time, this approach recognizes a greater expense earlier in the asset’s life, compared to a straight-line approach. For instance, if a company purchases equipment, a calculation might show a larger depreciation amount in the first few years, decreasing gradually thereafter.
This methodology can significantly improve a business’s early-year profitability reporting by reducing taxable income. It also acknowledges that certain assets lose more value or become obsolete more rapidly when they are newer. Historically, its adoption has been linked to industries with high technological turnover or where asset productivity declines substantially over time.
