Multiple Choice
Total depreciation recorded over an asset's service life is:
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8. Long Lived Assets
Depreciation: Summary of Main Methods
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Other terms used for an activity-based depreciation method are:
A
Sum-of-the-years'-digits method
B
Units-of-production method
C
Straight-line method
D
Declining-balance method
Verified step by step guidance1
Understand the concept of activity-based depreciation: This method allocates the cost of an asset based on its usage or activity level, rather than time. It is ideal for assets whose wear and tear depend on usage rather than age.
Review the Units-of-Production method: This is a specific activity-based depreciation method where depreciation is calculated based on the number of units produced or hours used. It ties the expense directly to the asset's productivity.
Compare the Units-of-Production method with other depreciation methods: For example, the Straight-Line method allocates equal depreciation over the asset's useful life, while the Declining-Balance method accelerates depreciation in the early years. The Sum-of-the-Years'-Digits method also accelerates depreciation but uses a fractional approach.
Identify why the Units-of-Production method is considered activity-based: Unlike time-based methods (e.g., Straight-Line), this method directly correlates depreciation to the asset's actual usage, making it more accurate for certain types of assets.
Conclude that the correct term for an activity-based depreciation method is the Units-of-Production method, as it aligns depreciation with the asset's activity level rather than time.
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