Unit of Production Method

Unit of production method is a method of calculating depreciation for a physical property that is not under the continuous use by the business entity. The unit of production method is the method of calculating depreciation that is mostly used for the machines or the production units where the value or the physical status of the property depends upon the number of units of the products produced by the production unit rather by the number of years the production unit is kept in usage. The reason behind using the number of units produced rather than using the data of number of years the production unit is being kept used is that the greater deductions for depreciation are taken when the depreciation calculated for the number of years the production unit is used.

In most of the cases the IRS has given a standard of using Modified Accelerated Cost Recovery Method to calculate the depreciation for a property. However if there is another and more efficient method of calculating depreciation then the later method is used instead of modified accelerated cost recovery method. All those properties that are excluded from the modified accelerated recovery method can use the unit of production method for calculating depreciation for those properties. The type of depreciation method used to calculate the depreciation over the property is chosen at the time of the service.