3.4.5 (HL)—Depreciation method suitability

Method suitability asks whether an asset loses usefulness mainly with time or with use. Straight-line is simple and predictable when decline is even; units of production is more informative when wear tracks output or operating hours.

Straight-line supports stable budgeting but can misstate a vehicle or machine used intensely early and lightly later. Units of production matches usage better but requires reliable activity data and produces less predictable yearly expense.

A pizza oven expected to last 12,000 hours should use usage data if hours drive wear: depreciable cost per hour multiplied by first-year hours gives the expense. A low-use office asset with steady obsolescence may suit straight-line instead.

The method is not chosen only because a formula is easy. Consider obsolescence, usage pattern, materiality, data quality and reporting rules; depreciation still does not prove the asset’s market value.