Simple English definitions for legal terms
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The unit depreciation method is a type of depreciation method used to calculate the depreciation of an asset based on the number of units it produces or the number of hours it is used. This method is commonly used for assets that are used in production, such as machinery or equipment.
For example, let's say a company purchases a machine for $10,000 that is expected to produce 100,000 units over its useful life of 5 years. Using the unit depreciation method, the company would calculate the depreciation expense for each unit produced. In this case, the depreciation expense per unit would be $0.10 ($10,000 / 100,000 units).
Another example would be a trucking company that uses its trucks for a certain number of hours each year. The company could use the unit depreciation method to calculate the depreciation expense for each hour the truck is used.
The unit depreciation method is useful because it allows companies to more accurately calculate the depreciation expense for assets that are used in production. By calculating the depreciation expense per unit or per hour, companies can better understand the true cost of producing their products or providing their services.