Unit of Production Method

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Economic Depreciation

    A measure of the decrease in value of an asset over a specific ...
  2. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax ...
  3. Depreciation Recapture

    The gain received from the sale of depreciable capital property ...
  4. Depreciation

    1. A method of allocating the cost of a tangible asset over its ...
  5. Straight Line Basis

    A method of computing amortization (depreciation) by dividing ...
  6. Accumulated Depreciation

    The cumulative depreciation of an asset up to a single point ...
RELATED FAQS
  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. Why would you use the TTM (trailing twelve months) rather than the data from the ...

    Public companies report their yearly financial statements along with an annual report. However, financial professionals are ... Read Full Answer >>
  4. Why is it important for an investor to understand business accounting?

    Investors use financial statements to obtain valuable information used in valuation and credit analysis of companies. Therefore, ... Read Full Answer >>
  5. What are the business consequences of using FIFO vs. LIFO accounting methods?

    If a company uses a first-in, first-out accounting method (FIFO), it's likely that its reported earnings will be higher than ... Read Full Answer >>
  6. How do you analyze inventory on the balance sheet?

    In accounting, inventory represents a company's raw materials, work in progress and finished products. Financial professionals ... Read Full Answer >>
Related Articles
  1. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  2. Forex Education

    Depreciation: Straight-Line Vs. Double-Declining Methods

    Appreciate the different methods used to describe how book value is "used up".
  3. Taxes

    Capital Gains Tax 101

    Find out how taxes are applied to your investment returns and how you can reduce your tax burden.
  4. Taxes

    Avoiding IRS Penalties On Your IRA Assets

    The best way to avoid additional charges and taxes is to know which transactions have expensive consequences.
  5. Taxes

    Deducting Losses On Your IRA Investments

    In regular accounts in which taxes are not deferred, losses on investments can be included on your tax return. Find out how.
  6. Retirement

    Cut Your Tax Bill

    Paying your bills early or giving an extra donation now can help you come tax time.
  7. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.
  8. Economics

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.
  9. Fundamental Analysis

    Why Last In First Out Is Banned Under IFRS

    We explain why Last-In-First-Out is banned under IFRS
  10. Economics

    Understanding Carrying Value

    Carrying value is the value of an asset as listed on a company’s balance sheet. Carrying value is the same as book value.

You May Also Like

Hot Definitions
  1. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
  2. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  3. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  4. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  5. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  6. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
Trading Center