Activity Depreciation Calculator

Activity Depreciation Formula:

\[ Depreciation = (Cost - Salvage) \times \frac{Activity}{Total\ Activity} \]

Cost ($):

Salvage ($):

Activity (units):

units

Total Activity (units):

units

Depreciation:

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1. What is Activity Depreciation?

Activity depreciation (also called units-of-production depreciation) is a method of allocating the cost of an asset over its useful life based on its usage, activity, or units produced rather than the passage of time.

2. How Does the Calculator Work?

The calculator uses the activity depreciation formula:

\[ Depreciation = (Cost - Salvage) \times \frac{Activity}{Total\ Activity} \]

Where:

$ Cost $ — Original cost of the asset ($)
$ Salvage $ — Estimated salvage value at end of useful life ($)
$ Activity $ — Actual activity/usage during the period (units)
$ Total\ Activity $ — Total estimated activity over asset's life (units)

Explanation: This method matches depreciation expense to actual usage, making it ideal for assets whose wear and tear is more closely related to activity than time.

3. Importance of Activity Depreciation

Details: Activity depreciation provides a more accurate matching of expenses to revenue for assets whose usage varies significantly from period to period, such as manufacturing equipment, vehicles, or production machinery.

4. Using the Calculator

Tips: Enter all values as positive numbers. Total Activity must be greater than zero. Activity should not exceed Total Activity for accurate results.

5. Frequently Asked Questions (FAQ)

Q1: When should I use activity depreciation?
A: Use this method for assets whose wear and tear is primarily related to usage rather than time, such as manufacturing equipment, vehicles, or production machinery.

Q2: What's the difference between activity and straight-line depreciation?
A: Straight-line depreciates evenly over time, while activity depreciation varies with usage, providing a better matching of expenses to revenue.

Q3: How do I estimate total activity?
A: Total activity is based on the asset's expected total usage over its lifetime, such as total units produced, total miles driven, or total operating hours.

Q4: Can activity depreciation result in zero depreciation?
A: Yes, if there's no activity during a period, depreciation expense will be zero for that period.

Q5: What happens if actual activity exceeds estimated total activity?
A: Depreciation stops once the accumulated depreciation reaches (Cost - Salvage Value), even if the asset continues to be used.