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CA Foundation · Accounting · Depreciation and Amortisation

Ganga Mills buys a machine for ₹10,00,000 with an estimated total life of 20,000 working hours and nil residual value. If the machine works 2,400 hours in the first year, what is the depreciation for that year under the machine hour rate method?

Depreciation is ₹1,20,000. The hourly rate is ₹10,00,000 divided by 20,000 hours, which is ₹50, and multiplying this by the 2,400 hours worked in the year gives ₹1,20,000. The method links depreciation to actual usage rather than elapsed time.

  1. A₹1,20,000Correct
  2. B₹1,00,000
  3. C₹2,40,000
  4. D₹83,333

Explanation

Rate per hour = ₹10,00,000 ÷ 20,000 = ₹50. Depreciation for the year = 2,400 × ₹50 = ₹1,20,000. Check: 2,400/20,000 = 12%, and 12% of ₹10,00,000 = ₹1,20,000. ₹1,00,000 would result from wrongly assuming a 10% rate, ignoring hours.

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