Asset Depreciation Range - ADR


DEFINITION of 'Asset Depreciation Range - ADR'

An elective accounting method established by the Internal Revenue Code for tangible assets placed into service after 1970. Prior to the ADR system, there were over 100 asset classes for tangible property based on the taxpayer's business and industry. Because the ADR system did not solve the problems it was intended to address, namely, disagreements between the IRS and taxpayers about accounting for the useful life, salvage value and repairs of assets, the Accelerated Cost Recovery System was introduced in 1981 to provide a less complicated way to determine depreciation.

BREAKING DOWN 'Asset Depreciation Range - ADR'

Businesses had more flexibility under the ADR system to determine the useful life of an asset, because the asset depreciation range allowed the taxpayer a 20% leeway above and below the IRS's established useful life for each asset class. Thus, if the established useful life of a desk was considered to be 10 years, the taxpayer could depreciate it over anywhere from eight to 12 years. Depreciation methods allowed by the IRS have changed several times since the ADR system; today the taxpayer must depreciate that same desk over seven or 10 years, depending on the depreciation system used.

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  3. How much working capital does a small business need?

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  4. What does high working capital say about a company's financial prospects?

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  5. How can working capital affect a company's finances?

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