# General Depreciation System (GDS)

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## Definition of 'General Depreciation System (GDS)'

The General Depreciation System (GDS) is a depreciation method that allows businesses to deduct a fixed percentage of the cost of an asset each year over its useful life. The GDS is the default depreciation method for most assets, and it is also the simplest to use.

To calculate depreciation under the GDS, you first need to determine the asset's depreciable basis. This is the cost of the asset minus any salvage value. The salvage value is the estimated value of the asset at the end of its useful life.

Once you have determined the depreciable basis, you need to multiply it by the appropriate depreciation rate. The depreciation rate is based on the asset's useful life. For example, the depreciation rate for a 7-year asset is 14.29%.

You then divide the depreciation amount by the number of months in the year to get the monthly depreciation expense. For example, if the depreciation amount is \$1,000 and the asset is being depreciated over 7 years, the monthly depreciation expense would be \$142.86.

The GDS is a straight-line depreciation method, which means that the depreciation expense is the same each year. This can be beneficial for businesses that want to spread out the cost of an asset over its useful life.

However, the GDS may not be the most advantageous depreciation method for all businesses. Businesses that expect the value of their assets to decline more rapidly may want to use an accelerated depreciation method.

The Modified Accelerated Cost Recovery System (MACRS) is an accelerated depreciation method that allows businesses to deduct a larger percentage of the cost of an asset in the early years of its useful life. MACRS is often more advantageous than the GDS for businesses that expect the value of their assets to decline rapidly.

Businesses can choose to use either the GDS or MACRS to depreciate their assets. However, once a business chooses a depreciation method, it must use that method for all of its assets of the same class.

The GDS is a simple and straightforward depreciation method that is often the most advantageous for businesses that want to spread out the cost of an asset over its useful life.

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