Activity Method Depreciation Calculator

Calculate depreciation based on actual usage (units of production) rather than time

Asset Information

Asset Initial Cost ($)

Residual (Salvage) Value ($)

Total Useful Units in Life

Units Used This Period

Depreciation Results

Depreciation Expense

-

$

Current period depreciation amount

Depreciation Rate

-

per unit

Cost per unit of activity

Accumulated Depreciation

-

$

Total depreciation to date

Asset Value Breakdown

30%

Depreciated Value

Remaining Value

Salvage Value

Depreciation Schedule

Period	Units Used	Depreciation Expense	Accumulated Depreciation	Book Value

About Activity Method Depreciation

The activity method (or units of production method) calculates depreciation based on actual usage rather than time. This method is ideal for assets whose wear and tear depends more on usage than the passage of time, such as manufacturing equipment or vehicles.

Formula: Depreciation Expense = (Cost - Salvage Value) × (Units Used / Total Useful Units)

This calculator helps determine depreciation using the activity method. Print Results

1. What is the Activity Method of Depreciation?

The Activity Method (also known as the Units of Production Method) is a depreciation approach that allocates the cost of an asset based on its actual usage, productivity, or output rather than the passage of time. This method is ideal for machinery, vehicles, or equipment where wear and tear depend on operational activity rather than age.

Key Features:

• Depreciation expense varies with usage.

• Best suited for assets with measurable output (e.g., miles driven, machine hours, units produced).

• More accurately matches expenses with revenue generation.

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2. Formula for Activity Method Depreciation

The depreciation expense per unit is calculated as:

$$\text{Depreciation per Unit}=\frac{\text{Cost of Asset}-\text{Salvage Value}}{\text{Total Estimated Units of Activity}}$$

The annual depreciation expense is then:

$$\text{Depreciation Expense}=\text{Depreciation per Unit}\times \text{Actual Units Used in the Year}$$

Variables:

• Cost of Asset = Purchase price + installation/shipping costs.

• Salvage Value = Estimated resale value at the end of its useful life.

• Total Estimated Units of Activity = Expected lifetime capacity (e.g., total miles, hours, or units).

• Actual Units Used = Units consumed in a given year.

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3. How to Use an Activity Method Depreciation Calculator

An Activity Method Depreciation Calculator automates the computation, requiring the following inputs:

Inputs Required:

1. Initial Cost of Asset ($)

2. Salvage Value ($)

3. Total Estimated Units of Activity (e.g., 100,000 miles, 50,000 machine hours)

4. Actual Units Used in the Period

Output Provided:

• Depreciation per Unit

• Depreciation Expense for the Period

• Remaining Book Value

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4. Example Calculation

Scenario:
A company buys a delivery truck for $50,000 with a salvage value of $5,000. The truck is expected to run 200,000 miles over its useful life. In Year 1, it drives 30,000 miles.

Step-by-Step Calculation:

1. Depreciation per Mile:

   $$\frac{50,000-5,000}{200,000}=\mathrm{\$}0.225\text{ per mile}$$

2. Year 1 Depreciation:

   $$30,000\text{ miles}\times \mathrm{\$}0.225=\mathrm{\$}6,750$$

3. Book Value at End of Year 1:

   $$50,000-6,750=\mathrm{\$}43,250$$

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5. Advantages & Disadvantages

Advantages:

✔ Accurate Expense Matching – Reflects actual asset usage.
✔ Fair Allocation – Higher depreciation in high-usage years.
✔ Ideal for Variable-Use Assets – Best for manufacturing, transport, and heavy machinery.

Disadvantages:

✖ Complex Tracking Needed – Requires monitoring actual usage.
✖ Not Suitable for All Assets – Less useful for office equipment or real estate.
✖ Estimates Can Be Wrong – If total usage is misjudged, depreciation may be inaccurate.

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6. When to Use the Activity Method?

This method is best for:

• Vehicles (based on miles driven)

• Manufacturing Machines (based on units produced)

• Construction Equipment (based on hours used)

• Printing Presses (based on pages printed)

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7. Activity Method vs. Other Depreciation Methods

Method	Basis of Depreciation	Best For
Activity Method	Actual usage (units/miles/hours)	Vehicles, machinery
Straight-Line	Equal yearly amounts	Buildings, office equipment
Double Declining Balance	Accelerated early depreciation	Tech gadgets, fast-obsoleting assets
Sum-of-Years’ Digits	Decreasing yearly depreciation	Assets losing value quickly