Units of usage Depreciation

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Traditionally all companies put their equipment and vehicles on straight line depreciation method, and this might not be themost effective way of measuring the usage of the asset. Instead of using straight line 20% on a vehicle, rather record the kilometres travelled, and have your fixed asset system work out the depreciation.

This will allow you to accurately measure the asset, and gives you the information you need that will allow you to better plan replacement / repairs of the asset. A good system will also allow you to estimate the future usage on the plan, and will assist with forecasting.

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Units of usage depreciation calculation can be calculated in the following way:

(Units worked for the month / Potential units able to work) x Current NBV

For example: A vehicle is able to travel 100000km before the business will consider it fully used.The vehicle cost R300 000, and the first month travel is 1000km. Depreciation is then worked our as (1000 x 100 000 ) X R300 000 = R3000 depreciation for that month. If this asset was on a Straight line 20%, the depreciation would have been R5000, which is not an accurate reflection of the actual usage.

This can potentially affect the life of the asset, and may save you the cost of replacing this asset to soon.

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