AIPB Mastering Depreciation Practice Test 2025 - Free Depreciation Practice Questions and Study Guide

The units of production method is a depreciation approach that allocates an asset's cost based on its actual usage or output over time. This method recognizes that the value of the asset diminishes not just with the passage of years but primarily with how much it is utilized in production or service provision. By linking the depreciation expense directly to the activity level, it provides a more precise reflection of the asset's contribution to revenue and its wear and tear.

For example, if a machine is used more in a particular year, higher depreciation would be recorded, reflecting the greater consumption of the asset's useful life. Conversely, if the asset is used less, the depreciation expense decreases, aligning it closely with actual performance.

Other options do not accurately capture the essence of this depreciation method. For instance, the method does not simply consider the number of years the asset has been in use, does not focus on normal wear and tear in a generalized way, and is primarily applied to tangible assets rather than intangible ones. Understanding this distinction helps clarify why the units of production method is especially useful for analyzing the wear and tear of physical assets based on their actual output.