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Machine Hour Method

Under this method, depreciation is calculated on the basis of hours that the Respective machine has worked. The machine hour rate is calculated after estimating the total number of hours that the machine would work. This method is also known as service hour method.


Under this method, depreciation is provided by means of a fixed rate per hour calculated by taking total useful hours into consideration.

Method of Calculation of Depreciation


Illustration 9


A Ltd. purchased a machine for ₹ 55,000 on 1st April, 2009 and incurred ₹ 10,000 towards freight, insurance, carriage inwards and installation charges. It was estimated that the machinery will have a scrap value of ₹ 5, 000 at the end of its useful life which is 10 years of 3,000 hours each. A Ltd. decided to depreciate the machines on ‘Machine Hour Rate Method’. The machine hours during first six years were as under:


Show the Machinery Account from 1st April, 2009 to 31st March, 2015.


Working Note: Calculation of rate of depreciation per machine hour.

Machine Hour Rate = (Cost of Acquisition - Scrap Value) / Life of the asset (in hours)


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