Units of Activity Method Calculator

Formula

The formula to calculate the depreciation expense using the Units of Activity Method is:

\[ DE = (C - SV) \times \left(\frac{UA}{TUA}\right) \]

Where:

$ DE $ is the depreciation expense ($)
$ C $ is the initial cost of the asset ($)
$ SV $ is the salvage value of the asset ($)
$ UA $ is the units of activity for the current period
$ TUA $ is the total units of activity over the asset's useful life

What is the Units of Activity Method?

The Units of Activity Method, also known as the Units of Production Method, is a depreciation method that calculates the depreciation expense of an asset based on its actual usage or production output. Instead of evenly spreading the cost of the asset over its useful life, like the straight-line method, this method allocates the cost based on the asset’s activity, such as the number of units it produces or the hours it operates. This method is particularly useful for assets whose wear and tear is more closely related to their usage rather than their age.

Example Calculation

Let's assume the following values:

Initial Cost of the Asset (C) = $50,000
Salvage Value of the Asset (SV) = $5,000
Units of Activity for the Current Period (UA) = 10,000
Total Units of Activity over the Asset's Useful Life (TUA) = 100,000

Using the formula to calculate the depreciation expense:

\[ DE = (50,000 - 5,000) \times \left(\frac{10,000}{100,000}\right) = 45,000 \times 0.1 = 4,500 \]

The Depreciation Expense (DE) is $4,500.