Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Find a Job
  • Home
  • Accounting, Taxation, and Reporting
  • Managerial & Financial Accounting & Reporting

General Depreciation System - Explained

What is a General Depreciation System?

Written by Jason Gordon

Updated at April 7th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is a General Depreciation System?Understanding the General Depreciation System (GDS)How General Depreciation System Works (Example)About Modified Accelerated Cost Recovery System (MACRS)Academic Research on General Depreciation System - GDS

What is a General Depreciation System?

General Depreciation System (GDS) refers to a method used to compute personal property's depreciation. GDS allows the use of tax depreciation (declining-balance-method) under the Modified Accelerated Cost Recovery System (MACRS). This works within a recovery period that is shorter as compared to the Alternative Depreciation System (ADS). Key Takeaways

  • General Depreciation System (GDS) refers to a method used to compute personal property's depreciation.
  • Modified accelerated cost recovery system (MACRS) is the main method of depreciation when it comes to federal income tax in the United States.
  • MARCS operates under two sub-systems; alternative depreciation system and general depreciation system respectively.
  • General depreciation system is the most common method when it comes to calculating depreciation of assets under the method of MACRS.

Back to: Accounting & Taxation

Understanding the General Depreciation System (GDS)

Generally, GDS is the most common method when it comes to calculating depreciation of assets under the method of MACRS. While real property for residential as well as nonresidential is depreciated using the straight-line method, personal property uses the declining-balance method to be declined. The declining-balance method is used in the beginning and then it is substituted with a straight line method. The substitution happens when there is a larger yield deduction.

How General Depreciation System Works (Example)

Since GDP applies the use of the declining-balance method let as look at how it works in the example below: Lets assume that an asset costing $1,000 undergo a depreciation of 25% every year. The deduction is $250.00 in year one and then $187.50 in year two, and so on.

About Modified Accelerated Cost Recovery System (MACRS)

Modified accelerated cost recovery is the main method of depreciation when it comes to federal income tax in the United States. It is used to determine deductions related to depreciation. It is preferred because it paves way for larger deductions of depreciation in the first years and then fewer deductions in the future years of possession. Using the MARCS method, the depreciations deduction is calculated using one of the below methods:

  • Declining-balance method
  • Straight-line method

Note that when working under the MACRS method, a taxpayer must use specified lives and method to calculate tax deduction for tangible property's depreciation. Also, when you dividing assets into a different set of classes, then you have to do it as per the assets type or according to the business in which the asset is used. MARCS operates under two sub-systems. They include:

  • Alternative depreciation system
  • General depreciation system

The difference between the above two depreciation systems is the number of years you decide to depreciate an asset. Note that the general depreciation system usually uses a recovery period that is shorter compared to the alternative depreciation system. However, there are particular assets which have a similar recovery period when applied under either of the two systems. Examples of assets that have the same recovery period under any of the two systems are cars, computers and light-duty Lorries. The recovery period of these assets is 5 years if applied under either of the systems.


general depreciation system

Was this article helpful?

Yes
No

Related Articles

  • Unit of Production Method (Depreciation) - Explained
  • Current Liabilities - Explained
  • Accrual Bond - Explained
  • Life Cycle Costing - Explained



©2011-2023. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand