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It is suitable for assets which give the It is suitable for assets which give a higher
same efficiency year after year example efficiency in earlier years and a lower
a building is used equally over the years. efficiency in later years, example machinery
used in various manufacturing processes and
motor vehicles
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If repairs increase in later years, the charge The charge of depreciation plus repairs is
of depreciation plus repairs increase each expected to be the same over the years.
year (since the depreciation is constant). In the initial years when repairs are low,
depreciation is high, and in later years when
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repairs are high, depreciation is low.
It is simple to understand and apply. It is relatively difficult to understand and
apply.

The units of production method
In the units of production method, the depreciation charge depends on the units of output;
it charges depreciation based on the expected use of an asset or output. The method is
appropriate when the economic benefits derived from the assets are proportional with the
units produced and the pattern of production is not uniform from time to time. Therefore,
the depreciation charge is reflecting the use of an asset to produce a certain level of
output. The cost of the non-current asset is allocated proportionally to the production
achieved, as shown in following formula:
Cost of the asset - residual value
Depreciation rate =
Total estimated units of output
Example 7.7
On 1 January 2019 Chapakazi Ltd bought a new machine for TZS 100,000,000. The
st
machine was estimated to have a working life of 5 years and at the end of its useful life
the realisable value was estimated to be TZS 20,000,000. The company is expected to
produce 800,000 units of output over its useful life while the actual production was
as follows:

Years Actual production (units)
2019 150,000
2020 200,000
2021 190,000
2022 150,000
2023 110,000

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