Page 33 - IC26 LIFE INSURANCE FINANCE

(6) Machine Hour Method : The machine depreciation is calculated after estimating the total number

of hours that machine would work during its whole, life.

(7) Production Units Method: Under this method depreciation of the asset is determined by comparing
the annual production with the estimated total production. The amount of depreciation is computed as:

Depreciation for the period = Depreciable Amount X Production during the period

Estimated Total Production

(8) Depletion Method : This method is used in case of mines, quarries etc. containing only a certain
quantity of product. The depreciation rate is calculated by dividing the cost of the asset by the
estimated quantity of product likely to be available. Annual depreciation will be the quantity extorted
multiplied by the rate per unit.

3. Change in the Method of Depreciation -

It should only be made in the following cases:

(i) If required by the statute.

(ii) For compliance with the Accounting Standards.

(iii)If it is considered that the change would result in the more appropriate presentation of the financial
statements.

Whenever there is any change in method of depreciation, the depreciation is recalculated in accordance

with the new method, from the date of asset coming into use. The deficiency or surplus arising after
recomputation should be transferred to P & L A/c in the year in which the method of depreciation is
charged.

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