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Units of production methods depreciate the asset cost based on actual use or production each period.

Units of production depreciation differs from other methods because it bases depreciation only on how much you use the asset. While methods such as straight-line divide depreciation over the asset life regardless of use, units of production disregards the passage of time.

Units of production depreciation is used for assets for which it is better to measure the life in terms of the quantity of the resource you expect to extract from them, such as mines or wells. For example, the production capacity of an oil well is the number of barrels of oil you expect to extract from it. For machinery or equipment, you measure the production capacity in terms of the expected total hours of use.

You can enter the production capacity as the expected total production or expected total use. First, you enter the units of production depreciation method, production capacity, and unit of measure. You then enter the production each period to depreciate the asset according to actual use that period.

Basic Depreciation Calculation

Depreciation Expense = (Production for the Period / Capacity) X Recoverable Cost

Oracle Assets then allocates the period depreciation to the depreciation expense accounts to which you have assigned the asset. Notice that for units of production depreciation there is no annual depreciation amount.

Depreciation Based on Actual Production

See Also

Units of Production Interface

Entering Production Amounts

Depreciation Reports