*Unit cost depreciation is where the book value of an item is reduced based on how much it is used.*

## The Formulas

Current book value

Amount of depreciation

Rate of depreciation

### Example 1

**A taxi was purchased for $35,000 and depreciates by an average of 23.6 cents per kilometre travelled. In one year the car is driven 22,461 kilometres.**

**a) What is the annual depreciation for this one year?**

Use the amount of depreciation formula. Make sure that you change the rate from cents to dollars.

Amount of depreciation

Amount of depreciation

Amount of depreciation

The taxi depreciates by $5,300.80 in this particular year.

**b) If the taxi has a scrap value of $15,000, what is its useful life (correct to the nearest kilometre)?**

Find how much the taxi would need to depreciate by.

Total depreciation

Total depreciation

Now use this value to calculate the distance that would need to be travelled.

Rate of depreciation

Rate of depreciation

Rate of depreciation

The taxi has a useful life of 84,746 kilometres.

#### See also

Straight Line Depreciation

Reducing Balance Depreciation

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