This activity method depreciation calculator estimates the asset's depreciation as a function of use or productivity instead of a time passage accounting approach. There is in depth information on how to apply this method below the form.
How does this activity method calculator work?
This is a handy tool that may help accountants estimate the depreciation of an asset by using the variable charge approach. It requires the following figures:
- Asset initial cost (AIC) which is the nominal value or the depreciable cost;
- Residual or the so called salvage value (RSC) of the asset at the end of its usage life;
- Total number of useful units in life (TUU);
- Number of units used in a period (NUU) of depreciation.
The algorithm behind this activity method depreciation calculator applies the following equations:
Depreciable base: [A] = AIC – RSC
Value of the depreciation per unit: [B] = [A] / TUU
Depreciation per each period: [C] = NUU * [B]
Relative depreciation per period: [D] = NUU / TUU * 100
Example of a calculation
In case of an asset registered at an initial value of $500,000, with a salvage value of $25,000 at the end, a total useful units of 50,000, while the number of units in a period is considered to be 8,000 depreciated will result in the following values:
■ Depreciable base: $475,000.00
■ Value of the depreciation per unit: $9.50
■ Depreciation per each period: $76,000.00
■ Relative depreciation per each period: 16.00%
What is activity method of depreciation?
In accountancy, this approach assumes that the depreciation should be determined in direct relation with the usage or the productivity of the asset and not by the traditional way that relates the amortization to the time usage.
Thus, the asset’s life is measured either in the output volume it provides (number of products that result by consuming the asset), or in an input figure such as the number of hours it can function.
This method can be used either in case an entity desires to register low depreciation during periods of low productivity or in case it seeks high depreciation during high productivity times.02 Feb, 2015