Concept Of Machine Hour Rate Method Of Depreciation
Under machine hour rate method, the total number of working hours of a machine during the whole of its effective life is estimated, and then, the cost of machine is divided by the expected number of hours of useful life, this gives the rate per hour. The annual depreciation is calculated by multiplying this rate by the number of hours, the machine actually runs in a year.
Under machine hour rate method, the total number of working hours of a machine during the whole of its effective life is estimated, and then, the cost of machine is divided by the expected number of hours of useful life, this gives the rate per hour. The annual depreciation is calculated by multiplying this rate by the number of hours, the machine actually runs in a year.
Calculation Of Machine Hour Rate Method Of Depreciation
Illustration,
The life of machine costing $ 10,00,000 is estimated 10,000 hours. Calculate the amount of depreciation for the year in which the machine runs for 1,500 hours.
Solution
Depreciation per hour = cost of machine - salvage value/total machine hours
= $ 10,00,000/10,000 hours
= $ 100.
Therefore, depreciation for the year = 1500 hours X 100 = $ 1,50,000