Units-of-Production Depreciation
Depreciation by USAGE rather than time, floored at salvage.
Example
You enter
- Cost basis ($) 50000
- Salvage value ($) 5000
- Total estimated lifetime units (hrs/mi/pcs) 100000
- Units used this period 8000
- Units used to date (incl. this period) 8000
You get
- Depreciation rate per unit $0.45
- This period's depreciation $3600
- Ending book value (floored at salvage) $46400
Details, formula, and sources
rate = (cost - salvage) / total estimated units; period = rate x period_units; book_value = max(cost - rate x accumulated_units, salvage). A $50,000 machine, $5,000 salvage, 100,000-unit life used 8,000 units this period depreciates $0.45/unit -> $3,600, book value $46,400. Two catches: an IDLE asset takes zero depreciation that period (time-based methods keep expensing), and the book value can never fall below salvage even past the unit life (run to 110,000 units and it floors at $5,000). A GAAP/book method for hours/miles-driven assets, not tax MACRS. A bookkeeping aid; the accounting policy and tax rules govern.
rate = (cost_basis - salvage_value) / total_units; period_depreciation = rate x period_units; book_value = max(cost_basis - rate x accumulated_units, salvage_value).
Units-of-production (activity) depreciation per GAAP and the IRS Pub 946 activity method, by name; the accounting policy and tax rules govern.
The units-of-production depreciation method is a standard GAAP activity method; the cost, salvage, unit life, and usage come from the asset records.
Estimate. AHJ and licensed professional govern.
Field names used by the API: cost_basis, salvage_value, total_units, period_units, accumulated_units, rate, period_depreciation, book_value
- By usage depreciation is rate per unit times units used; an idle asset takes zero that periodGAAP activity method
- Salvage floor book value cannot fall below salvage even past the estimated unit lifeGAAP
- Book not tax a GAAP/book method, not the tax MACRS method for most assetsIRS Pub 946