Which depreciation method ties depreciation expense to actual usage of the asset?

Which depreciation method ties depreciation expense to actual usage of the asset?

• A. Straight-line depreciation
• B. Accelerated depreciation
• C. Declining balance depreciation
• D. Units of production depreciation

Answer: (D)

The concept being tested is matching depreciation expense to how much the asset is actually used. Units of production depreciation does exactly that: the expense is based on actual usage rather than elapsed time. In this method, you start with the asset’s cost minus its salvage value and divide by the total expected units of production over the asset’s life to get a depreciation per unit. Each period’s depreciation is then this per-unit amount multiplied by the actual units produced (or hours used) in that period. So if the machine produced fewer units in a year, depreciation is lower; more units mean higher depreciation. This approach makes sense for equipment whose wear and tear depend on activity level—like a press or a turbine—where depreciation aligns with how much the asset is utilized. It contrasts with straight-line depreciation, which spreads the same amount each year, and with accelerated or declining balance methods, which allocate more expense in the early years regardless of how much the asset is actually used.

The concept being tested is matching depreciation expense to how much the asset is actually used. Units of production depreciation does exactly that: the expense is based on actual usage rather than elapsed time.

In this method, you start with the asset’s cost minus its salvage value and divide by the total expected units of production over the asset’s life to get a depreciation per unit. Each period’s depreciation is then this per-unit amount multiplied by the actual units produced (or hours used) in that period. So if the machine produced fewer units in a year, depreciation is lower; more units mean higher depreciation.

This approach makes sense for equipment whose wear and tear depend on activity level—like a press or a turbine—where depreciation aligns with how much the asset is utilized. It contrasts with straight-line depreciation, which spreads the same amount each year, and with accelerated or declining balance methods, which allocate more expense in the early years regardless of how much the asset is actually used.