Which depreciation method is also known as the 'units of production' or 'units of output' method?

• A. Sum-of-the-years'-digits depreciation method
• B. Units-of-activity depreciation method
• C. Double-declining balance depreciation method
• D. Straight-line depreciation method

Answer: (B)

Verified step by step guidance

1. Understand the concept of depreciation: Depreciation is the allocation of the cost of a tangible asset over its useful life. Different methods exist to calculate depreciation based on how the asset is used or its expected wear and tear.
2. Learn about the 'units of production' or 'units of output' method: This method calculates depreciation based on the actual usage or output of the asset, making it suitable for assets whose wear and tear depend on usage rather than time.
3. Compare the given options: The 'units-of-activity depreciation method' aligns with the description of 'units of production' or 'units of output' because it calculates depreciation based on the activity level or output of the asset.
4. Understand why other methods do not fit: The 'sum-of-the-years'-digits method' accelerates depreciation based on time, the 'double-declining balance method' also accelerates depreciation but uses a fixed percentage, and the 'straight-line method' spreads depreciation evenly over the asset's useful life. None of these are based on usage or output.
5. Conclude that the correct answer is the 'units-of-activity depreciation method' because it directly corresponds to the 'units of production' or 'units of output' approach.