Units of Production Depreciation Method

Definition: Units of Production Depreciation Method (also known as units of output method) calculates depreciation on the basis of expected output produced with the assets.

Formula:
Annual Depreciation = ((Cost of Fixed Asset - Residual value)/Estimated Production)) x Actual Production

Example:
An asset has original cost of $100,000, salvage value $20,000, and is expected to produce 5,000 units. Calculate the depreciation per unit using Units of Production Depreciation Method.

Answer:
Depreciation per unit = ($100,000−20,000) / 5,000 = $16
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