Asset Usage (Asset Activity) Depreciation Method

Usage-based depreciation methods aren't based on time, but on a level of activity. This could be miles driven for a vehicle, or a cycle count for a machine. When the asset is acquired, you estimate its life based on this activity level. Assume a vehicle is expected to go 50,000 miles in its lifetime. You'd calculate the per-mile depreciation rate as:

($17,000 cost - $2,000 salvage value) / 50,000 miles = $0.30 per mile

Each period, the depreciation expense is then calculated by multiplying the rate by the actual activity level.

Calculating Units-of-Activity Depletion:

• Depreciable Cost divided by Units in Useful Life = Per Unit Depreciation

• Per-Unit Depreciation x Units During Period = Period Depreciation Expense

If a truck with a depreciable cost of $80,000 ($90,000 cost, less $10,000 estimated salvage value) and is expected to go 400,000 miles during its service life, the truck depreciates $0.20 each mile ($80,000 ÷ 400,000 miles = $0.20 per mile). The following table shows how depreciation expense is assigned to the truck based on the miles driven each year.

General Notices