Units of Production Depreciation

For some assets, the only logical way to measure depreciation is by the quantity of the resources you expect to extract from the assets.

Examples:

• In a mine, the asset cost is the value of the minerals that are extracted.

• In an oil field, the asset cost is the value of the oil that's extracted.

The depletion of these resources is measured as depreciation.

Units of Production Methods Versus Other Methods

The following table shows how units of production depreciation methods differ from other methods:

Method	Description
Most methods, such as straight-line	Depreciation is divided over the asset life, regardless of use.
Units of production depreciation methods	Disregard the passage of time and depreciation is based only on how much you use the asset.

Basic Depreciation Calculation

For units of production depreciation methods, Oracle Assets uses the following to calculate depreciation:

• Asset cost

• Cost ceiling

• Salvage value

• Capacity

• Production entered for the period

Depreciation is calculated by dividing the production for the period by the capacity and multiplying by the recoverable cost.

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

Change the Depreciation Method

Keep the following in mind when changing depreciation methods:

• You can change the method from a calculated, table, or flat-rate method to a production method only in the period you add the asset.

• You can change the depreciation method from a production method to a calculated, table, or flat-rate method in the corporate book only if the asset doesn't use a production method in any associated tax book.

Because Assets only stores production amounts for an asset in the corporate book, keep in mind the following restrictions when changing depreciation information in the corporate or tax book:

Corporate Book	Tax Book	Allowed?
Production method	Production method	Yes
Production method	All types of methods	Yes
Any non-production method	Production method	No

Additional Considerations

You can't use depreciation expense ceilings with the units of production depreciation method. Because depreciation for units of production assets is calculated based on actual production, if you resume depreciation for an asset, reinstate the asset, or perform a prior period transaction, there is no missed depreciation.

Restrictions

When using units of production methods, you can't:

• Use units of production methods for construction-in-process (CIP) assets.

• Enter a production quantity for an asset before its prorate date. If you use a prorate convention, such as actual months, with the prorate date as the first day of the month, you can enter the production quantity for all days in the period you added the asset.

• Enter or upload units of production assets with accumulated depreciation.

  Instead, add the asset with zero accumulated depreciation, and then provide the life-to-date production quantity as the current period production quantity. Assets uses the production amount you enter to calculate the catchup depreciation.