Unit of Production Method


DEFINITION of 'Unit of Production Method'

A depreciation procedure used for property that is not in continuous use. The unit of production method is useful when the property's value is more closely related to the number of units it produces than the number of years it is in use. It results in greater deductions being taken for depreciation in years when the asset is heavily used.

BREAKING DOWN 'Unit of Production Method'

In general, the IRS requires businesses to depreciate property using the Modified Accelerated Cost Recovery System (MACRS), but it allows businesses to exclude property from this method if it can be accurately depreciated by another method. The depreciation method must be chosen at the time the property is placed in service.

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  1. How is salvage value used in depreciation calculations?

    When calculating depreciation, an asset's salvage value is subtracted from its initial cost to determine total depreciation ... Read Full Answer >>
  2. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ... Read Full Answer >>
  3. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  4. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  5. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
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