2.2.1.3.3. Modified Accelerated Cost Recovery System (MACRS)
To correct for the discrepancy created by the declining balance methods, the Modified Accelerated Cost Recovery System (MACRS) is an accelerated depreciation method that combines the declining balance and straight-line methods. Declining balance is used in the initial years and switches to the straight-line method at the point where straight-line depreciation yields a larger deduction.
Example: A five-year asset costs $100,000. Using the modified accelerated cost recovery system method, depreciation expense is calculated as follows:
|
MACRS Depreciation |
||||||
|
End of Year |
Book Value |
DBB Calculation |
DBB Depreciation |
Straight-line Calculation |
Straight-line Depreciation |
MACRS Depreciation |
|
0 |
100,000 |
- |
- |
- |
- |
- |
|
1 |
100,000 |
2 x $100,000/5 |
$40,000 |
100,000 / 5 |
$20,000 |
$40,000 |
|
2 |
60,000 |
2 x $60,000 / 5 |
$24,000 |
60,000 / 4 |
$15,000 |
$24,000 |
|
3 |
36,000 |
2 x $36,000 / 5 |
$14,400 |
36,000 / 3 |
$12,000 |
$14,400 |
|
4 |
21,600 |
2 x $21,600 / 5 |
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