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Depreciation: Units-of-Activity quiz

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  • What is the units of production method of depreciation also called?
    It is also called the units of activity method.
  • Why do companies use depreciation for fixed assets?
    Depreciation spreads the cost of an expensive asset over its useful life to match the expense with the revenue it generates.
  • What are the three key variables in the units of production method?
    The three variables are the initial cost of the asset, estimated useful life in units, and the residual value.
  • How is useful life measured in the units of production method?
    Useful life is measured in units of output, such as miles driven or units produced, not in years.
  • What is residual value also known as?
    Residual value is also called salvage value or scrap value.
  • How do you calculate the depreciable base in the units of production method?
    Subtract the residual value from the initial cost of the asset.
  • What is the formula for depreciation per unit in the units of production method?
    Depreciation per unit = (Cost - Residual Value) / Total Estimated Units of Production.
  • For what types of assets is the units of production method most useful?
    It is most useful for assets whose wear and tear depends on usage, like vehicles or manufacturing equipment.
  • Who estimates the useful life and residual value of an asset?
    The company estimates both the useful life and the residual value.
  • What does the denominator represent in the units of production depreciation formula?
    The denominator is the total estimated units of output the asset will produce.
  • How does the units of production method differ from the straight-line method?
    The units of production method allocates depreciation based on usage, while the straight-line method uses time.
  • What is the purpose of calculating depreciation per unit?
    It helps determine how much depreciation expense to record for each unit of output produced.
  • If a truck is expected to last 100,000 miles, what does this number represent in the units of production method?
    It represents the estimated useful life in units (miles) for depreciation calculations.
  • What happens to the asset's value at the end of its useful life according to the units of production method?
    At the end of its useful life, the asset is expected to be worth its residual (salvage) value.
  • Why is the units of production method considered more accurate for some assets?
    Because it matches depreciation expense more closely with the asset's actual usage and revenue generation.