Which formula is used to calculate depreciation using the Units of Use method?

The formula used for calculating depreciation using the Units of Use method is grounded in the principle of matching the asset's cost with the actual usage over its useful life. This approach recognizes that an asset’s value diminishes not just over time but based on the extent to which it is utilized.

The correct formula calculates depreciation as follows:

1. Historical Cost: This is the initial cost of the asset.

2. Residual Value: This is the estimated value of the asset at the end of its useful life.

3. Units Used During the Period: The actual output or usage amount of the asset during the specific accounting period.

4. Total Units of Life: This represents the total estimated output or usage the asset is expected to provide throughout its entire useful life.

By subtracting the residual value from the historical cost, you determine the total depreciable amount. This amount is then multiplied by the ratio of the units used during the period to the total estimated units of life. This approach accurately reflects the proportional reduction in value that corresponds with the actual usage of the asset, making it a suitable choice for assets whose value decreases primarily through usage rather than a fixed time period.

This method is particularly useful for assets whose wear and