The units of activity depreciation method can be used to calculate the depreciation expense for property, plant and equipment based on the level of activity or usage of the asset.
The units of activity method is often used when the lifetime of an asset depends on the amount of activity or use it receives rather than on a specific number of years as used in the straight line depreciation method.
The asset depreciation for an accounting period is based on the level of activity in that accounting period. Activity units can be defined in any number of ways to suit the asset and the business, such as number of hours used, or number of miles driven.
The calculation is carried out using the units of activity depreciation formula which takes the cost of the asset less any expected salvage (residual) value, and divides this by the expected lifetime activity of the asset in units. The units of activity depreciation formula used in this calculator is as follows:
If the unit of activity is defined as a unit of production, the method is sometimes referred to as the units of production depreciation method or the units of output method, and full details of how the method is used can be found in our units of production depreciation tutorial.
Using the Units of Activity Depreciation Calculator
The Excel units of activity depreciation calculator, available for download below, is used to compute units of activity depreciation by entering details relating to the asset and unit activity levels. The calculator is used as follows:
- Enter the cost of the asset. The cost of the asset can be found in the long term asset account, asset register, or on the original source document (invoice) for the asset
- Enter the salvage value. The salvage or residual value is the amount the asset is expected to be worth at the end of its useful life. The units of activity depreciation calculator works out the cost which is subject to depreciation, known as the depreciable cost.
- Enter the lifetime units of activity. The lifetime units of activity is the number of units which the asset is expected to be used for during its lifetime with the business. For example, if the asset is expected to last for 80,000 miles over its lifetime, then 80,000 is entered. The units of activity depreciation calculator works out the depreciation cost per unit for the asset.
- Enter the period units of activity. The period units of activity is the number of units the asset is actually used for during the accounting period. For example, if the asset was driven for 2,000 miles during the accounting period then 2,000 is entered. The units of activity depreciation calculator works out the depreciation expense for the asset for the accounting period.
Units of Activity Depreciation Calculator Download
The units of activity depreciation spreadsheet is available for download in Excel format by following the link below.
Users use this units of activity depreciation calculator at their own risk. We make no warranty or representation as to its accuracy and we are covered by the terms of our legal disclaimer, which you are deemed to have read. This is an example of a units of activity depreciation method calculator that you might use when considering how to calculate units of activity depreciation. It is purely illustrative. This is not intended to reflect general standards or targets for any particular business, company or sector. If you do spot a mistake in this units of activity depreciation method calculator, please let us know and we will try to fix it.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.