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Machine Hour Rate, Mileage, and Global Method of Depreciation:

Machine Hour Rate Method:

Under machine hour rate method of depreciation, 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 this estimated total number of working hours in order to arrive at the hourly rate which is multiplied by the number of hours the machine has been worked during the year to find out amount of depreciation for the period.

Mileage Method of Depreciation:

This method is used only for those assets whose useful life depends upon the fact that how many kilometers they have been driven e.g. buses, cars, trucks, and rolling stock etc. The depreciation on such assets depends on as to how many kilometers these assets have been driven.

For example, a car costing $12,000 was purchased and useful life was estimated to be 48,000 kms. Its rate of depreciation would be 25 cents per kilometer. If during first year it was driven 10,000 kilometers, the amount of depreciation would be 10,000 $0.25 = 2,500.

Global Method of Depreciation:

Under this method of depreciation, the value of all the assets irrespective of their nature is added together and depreciation is charged at an average rate on aggregated value. It is not a scientific method of providing depreciation. So it should be avoided.

 

More study material from this topic:

Definition, explanation and causes of depreciation
Depreciation is not a matter of valuation but a means of cost allocation
Activity method of depreciation
Straight line method of depreciation
Sum of the years' digits method of depreciation
Reducing balance method
Annuity method
Depreciation fund method or sinking fund method
Insurance policy method
Revaluation method
Depletion method
Machine hour rate, mileage, and global method
Methods of recording depreciation
Reserves
Difference between general reserve and specific reserve
Difference between capital reserve and general reserve
Difference between reserve and reserve fund
Difference between provision and reserve

 

A D V E R T I S E M E N T

 

Financial Accounting Topics


  Introduction to Accounting
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  Transactions and Accounting Equation
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  Analysis of Business Transactions
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  Journal, Ledger and Trial Balance
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  Accounting for Bills of Exchange
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  Special Journals
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  Cash Book
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Bank Reconciliation Statement
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  Final Accounts
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  Work Sheet
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  Capital and Revenue Items
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  Valuation of Inventories
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  Accounts of Non-profit Making Organizations
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  Statement of Cash Flows
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  Accounting Ratios Analysis
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  Depreciation, Provisions and Reserves
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  Accounting Dictionary
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  Financial Calculators
 
 
 
Managerial Accounting Topics

  Financial Statements
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  Cost Volume Profit Relationship
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  Variable Costing System
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  Materials and Inventory Cost Control
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  Activity Based Costing System
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  Standard Costing and Variance Analysis
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  Balanced Scorecard
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  Capital Investment Analysis/Capital Budgeting
 

 

 

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