Accelerated Depreciation

Certified Inventory Optimization Professional (CIOP) is an end-to-end supply chain certification program. The certification consists of 30 modules focusing both on traditional and futuristic topics. The traditional topics are introduction to supply chain management, all about inventory, strategic business planning, forecasting, demand management, capacity management, sales and operations planning (S&OP), master scheduling (MPS), materials requirements planning (MRP) and production activity control (PAC). It also includes topics on procurement, warehousing, transportation, distribution, and packaging. The topic on the future trends such as Blockchain, Internet of Things (IoT), Robotic Process Automation (RPA), Machine Learning (M/L) and Artificial Intelligence (AI). There is a significant focus on supporting technologies such as forecasting and process mapping tools such as Microsoft Visio. In addition to the above indicated topics the participants need to master over 3000 terminologies in supply chain management.

Accelerated Depreciation is an asset impairment method, sometimes called a CIFI (or Cost Based Inventory), in which a certain fixed asset, such as inventory, is replaced with an equivalent asset that has a similar (or equal) quantity and quality of material, but at a lower cost. This method differs from traditional depreciation only in the fact that the assets being replaced are not usually new (because they are of the same age as the old items and because the businesses replacing them do not have the time, money, or other resources to replace the items). 

Instead, Accelerated Depreciation is designed to more rapidly realize the cash value of inventory assets. It does not account for the effect of inflation on the purchase price of the inventory, which can substantially raise the cost of replacing the items. Accelerated Depreciation is a great tool for minimizing inventory-based damages, which accounts for about 30 percent of inventory cost in most business-for-sale situations.

The most familiar form of Accelerated Depreciation occurs when raw materials, goods in process, or even finished products are sold at prices above their fair market value (also called a mark-up), allowing the depreciated value of the assets to be used as the basis for calculating depreciation. Accelerated Depreciation is not the same as cash-or-lease buying, where the assets being purchased are treated as depreciated property. Accelerated Depreciation is a business expense on cash-or-lease purchase transactions only; it is not tax deductible. Any amount by which the net actual cash cost exceeds the amount for which the depreciated value is depreciated is treated as an expense for tax purposes. For example, if the entire cost of purchasing a certain item has been depreciated in one year, and if that item sells at an exorbitant price in the next year, the gain on the sale is unlimited.

The IRS may consider an accelerated depreciation schedule to be an appropriate option for many situations. When determining if accelerated depreciation is appropriate, the taxpayer should consult with an experienced certified public accountant (CPA). He or she will be able to provide relevant advice on whether a business should use accelerated depreciation or another method of depreciation that would be more beneficial to the business. The CPA can also assist in determining which methods of depreciation are most appropriate for your business's needs.

Related Articles

Accelerated Depreciation
Accelerated Depreciation Definition
What is Accelerated Depreciation?
How to Calculated Accumulated Inventory Depreciation?
Understanding the Straight Line and Accelerated Depreciation Methods