The depreciation method that estimates the number of units of service or output that can be provided by an asset and allocates the depreciable cost of the asset on the basis of the use or output during each period is called the
A) declining-balance method.
B) sum-of-the-years'-digit method.
C) units-of-production method.
D) straight-line method.

Question

Quizplus · Accepted Answer

The units-of-production method is specifically designed for assets that are used to produce goods or services, and is therefore the best choice for allocating the depreciable cost of the asset based on the number of units of output that are produced. This method is particularly useful for assets that are expected to have varying levels of usage or output in different accounting periods. The other options (declining-balance method, sum-of-the-years'-digit method, and straight-line method) do not take into account the level of usage or output of the asset, and are therefore less appropriate for assets that are used to produce goods or services.

The Depreciation Method That Estimates the Number of Units of Service