What is the distinctive feature of straight-line depreciation compared to units-of-production depreciation, and when should each be used?

What is the distinctive feature of straight-line depreciation compared to units-of-production depreciation, and when should each be used?

• A. Straight-line allocates the same amount each year; units-of-production bases depreciation on usage; use straight-line for assets with even wear; use units-of-production for usage-based wear.
• B. Straight-line bases depreciation on usage; units-of-production uses time; use straight-line for usage-based wear.
• C. Straight-line yields more accurate results in all cases.
• D. Units-of-production should never be used.

Answer: (A)

The key idea is how depreciation is allocated over the asset’s life. Straight-line depreciation spreads the cost evenly across each year, so the same amount is charged annually. Units-of-production depreciation ties the charge to actual use or output—it's based on how much the asset is used (like hours run or units produced). That makes the chosen statement the best: it says straight-line allocates the same amount each year and units-of-production bases depreciation on usage, and it correctly notes when to use each method—straight-line for assets whose wear is roughly even over time, and units-of-production for assets whose wear depends on how much they are used. In context, you’d use straight-line for things like office equipment or buildings where wear tends to be time-related and relatively steady, or when you can’t reliably measure usage. You’d use units-of-production for manufacturing equipment or vehicles where depreciation should reflect actual production or usage levels, so a year with higher output costs more depreciation.

The key idea is how depreciation is allocated over the asset’s life. Straight-line depreciation spreads the cost evenly across each year, so the same amount is charged annually. Units-of-production depreciation ties the charge to actual use or output—it's based on how much the asset is used (like hours run or units produced).

That makes the chosen statement the best: it says straight-line allocates the same amount each year and units-of-production bases depreciation on usage, and it correctly notes when to use each method—straight-line for assets whose wear is roughly even over time, and units-of-production for assets whose wear depends on how much they are used.

In context, you’d use straight-line for things like office equipment or buildings where wear tends to be time-related and relatively steady, or when you can’t reliably measure usage. You’d use units-of-production for manufacturing equipment or vehicles where depreciation should reflect actual production or usage levels, so a year with higher output costs more depreciation.