Alternative Depreciation System - ADS

First, let's do a brief rundown of depreciation. You buy something big. For a business, this could include large machinery or equipment. For a regular person, the best common example is probably a car.

Once you buy a car, that car instantly starts to become less valuable. Except in the rare cases where a vehicle becomes a collectors' item (do you happen to own a operational mint-condition Ford Model T?), each year you own a car, it declines in value. That decline in value is called depreciation.

Depreciation matters to companies because they have to keep regular track of the value of their assets. This includes an accounting of all the stuff they own, including all that machinery and equipment. When they report their assets, they need to be able to list what it's worth at the time.

But how to do this? They don't put all their stuff on eBay, find out the highest bid and then cancel the order ("Anyone looking for a two-year-old industrial metal press"). Instead, there are prescribed formulas that accountants can use to calculate depreciation.

The alternative depreciation system is one of those methods of calculation. As you might guess from its name, the ADS does not represent the most common method. It's like that punk band your brother loved in college, the one the mainstream critics "never understood."

The ADS gets pulled out in circumstances where an asset will get used over a long period of time. The system assumes a larger number of years in making its determination, so the annual decline in value is less than with traditional methods.