Units-of-production depreciation

Units-of-production depreciation charges an asset's depreciable cost in proportion to actual usage, such as units made or hours run, rather than in equal amounts over time as under straight-line.

ByHoang TruongUpdated July 5, 2026

FrameworkIAS 16

See it move

Loading infographic...

A print shop's industrial printer, costing €90,000 with a €10,000 residual value over 400,000 sheets of lifetime capacity, depreciates at €0.20 per sheet. In its first year it produces 60,000 sheets, charging €12,000 of depreciation; in its second year, demand slows to 25,000 sheets, charging only €5,000. Unlike straight-line depreciation, the annual charge rises and falls with actual output.

Where it fits

SubjectFinancial AccountingCoreTopicAsset Measurement & ValuationCore

The formula

LaTeX

\text{Depreciation expense} = \dfrac{\text{Cost} - \text{Residual value}}{\text{Total estimated units}} \times \text{Units produced}

Variables

$C$: Cost (€)
$R V$: Residual value (€)
$T U$: Total estimated units of production over the asset's life (units)
$U P$: Units produced in the period (units)

Ties the depreciation charge to actual usage, so it rises and falls with output rather than staying fixed each year.

Check yourself

PracticeCORE

A quarry buys an excavator for €260,000, with an estimated residual value of €20,000 and an estimated total lifetime capacity of 480,000 tonnes of rock extracted. In its first year of use, it extracts 96,000 tonnes. What is the depreciation expense for that year under the units-of-production method?

Select an answer to check your understanding.