Question

How does an asset’s ADR (asset depreciation range) relate to its MACRS category? (LO12-2)

Short answer

Answer

MACRS category of an asset depends upon the midpoint of the asset depreciation range.

Step-by-step solution

Definition of Depreciation Expenses

Depreciation is the non-cash expense recorded in the books of accounts to shows the decline in the value of fixed assets due to normal wear and tear during the business operations.

Relation between the asset’s ADR and its MACRS category

ADR (asset depreciation range) defines the asset’s expected life and depreciation range. A business entity usually uses the mid-point of the asset depreciation range and useful life.

ADR midpoint is directly related to the MACRS category of the asset. If the ADR midpoint is longer, the asset will be placed in the more extended MACRS category.

A business entity can also write off its asset more rapidly than the mid-point of the asset depreciation range.