The units of output depreciation method determines depreciation expense based on the usage of an asset within a specified period. The estimated useful life of an asset is then expressed in relationship to the asset’s estimated productive capacity, which is based on the total number of units you expect the asset to produce during its lifetime. The units of output method is also frequently referred to as the productive output method, the units of production method, or the units of activity method. Units of output depreciation is commonly used when asset usage varies dramatically from period to period.
Datastream 7i calculates units of output depreciation by calculating a depreciation cost per unit, which it then uses to calculate the units of output depreciation expense for the period. Datastream 7i calculates the depreciation cost per unit based on the following formula:
(Original value – Residual value) / Estimated lifetime output = Depreciation expense per unit
Datastream 7i then calculates the units of output period depreciation expense based on the following formula:
Depreciation expense per unit x The number of units produced = Units of output depreciation expense
When you enter depreciation data for units of output, select Units of output as the Depreciation method, and then enter values for Original value, Estimated useful life, the unit of measure, and Residual value. You must enter the Est. lifetime output for the asset. Click Enter units of output, and then enter the Units of output for each period.
If you enter a number of units for an asset that would result in dropping the value of the asset below its Residual value, Datastream 7i stores the units of output entered but only calculates depreciation up to the Residual value.