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.
FrameworkIAS 16
What it is
See it move
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.
The formula
Variables
- Cost (€)
- Residual value (€)
- Total estimated units of production over the asset's life (units)
- 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.
If you trained under a national GAAP
DE · HGBWhere national-GAAP intuition diverges from the international standard
HGB (German)
HGB accepts output-based depreciation, sometimes called performance depreciation, where the annual charge is tied to actual usage — machine hours run or units produced — rather than to the passage of time. It is treated as a legitimate systematic method for assets whose wear depends mainly on how hard they are worked, and German tax law likewise allows a usage-based allowance for movable assets where the taxpayer can substantiate the level of use. In practice, though, many German firms default to time-based methods because they align more simply with the tax depreciation tables.
IFRS
IAS 16 asks that the depreciation method track how the asset is actually used up over its life, and where that usage rises and falls with output, the units-of-production method is exactly the right choice. The two frameworks are therefore closely aligned on this method. The main practical difference is one of emphasis — IFRS asks squarely whether the chosen pattern reflects consumption, whereas the HGB choice is more likely to be steered by consistency with the tax accounts.
Edlintics’ own explanatory summary — not official IFRS Foundation or national standard-setter guidance.
Check yourself
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?