Straight-Line Depreciation
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Units of Production (UOP) is a depreciation method where expense is based on actual use rather than time. Assets like machinery, vehicles, or printing presses depreciate proportionally to the output they produce. More use = more depreciation.
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Tip: UOP gives the most accurate picture of asset consumption for high-use/low-use scenarios. A delivery truck driven 50,000 miles one year and 10,000 miles the next should depreciate proportionally — not equally each year.
- 1Depreciation per unit = (Cost − Salvage value) / Total estimated units of production
- 2Annual depreciation = Units produced that year × Depreciation per unit
- 3Total depreciation = actual use, not calendar-based
- 4Asset life ends when total depreciable base is consumed
Machine costs $50,000, salvage $5,000, lifetime 100,000 units. Year 1: 20,000 units=$9,000 depreciation in Year 1(50k−5k)/100k = $0.45/unit × 20k = $9,000
| Method | Based on | Best for |
|---|---|---|
| Straight-line | Calendar time | Buildings, furniture |
| Declining balance | Calendar time | Technology, vehicles |
| Sum-of-years digits | Calendar time | Moderate acceleration |
| Units of production | Actual use | Mining, manufacturing, vehicles |
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Fun Fact
Oil and gas companies use a similar concept called 'depletion' — the reserve is depleted as oil is extracted. An oil field valued at $10M with 1 million barrels might deduct $10/barrel in depletion expense as oil is pumped out.
References
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