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Working Hours Method WHM and Unit

The document discusses two methods for calculating depreciation: the working hours method (WHM) and unit product method (UPM). Both methods estimate the life of an asset in terms of service hours or production units to determine the depreciation rate. The depreciation is calculated by taking the ratio of hours/units used in a period to total estimated hours/units, and applying it to the total depreciation. The document provides examples to illustrate calculating depreciation using the UPM for a machine over 5 years based on estimated production units. It also provides an example using the WHM to calculate depreciation over 5 years for a car based on estimated miles driven.

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Sharryne Pador Manabat
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2K views

Working Hours Method WHM and Unit

The document discusses two methods for calculating depreciation: the working hours method (WHM) and unit product method (UPM). Both methods estimate the life of an asset in terms of service hours or production units to determine the depreciation rate. The depreciation is calculated by taking the ratio of hours/units used in a period to total estimated hours/units, and applying it to the total depreciation. The document provides examples to illustrate calculating depreciation using the UPM for a machine over 5 years based on estimated production units. It also provides an example using the WHM to calculate depreciation over 5 years for a car based on estimated miles driven.

Uploaded by

Sharryne Pador Manabat
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Working Hours Method (WHM)

and Unit Product Method


(UPM)
Presented by: Ramirre Sharryne Manabat
Unit-product method

is based on the theory that asset is acquired for the


service it can provide in the form of production
output.
Working hour method

service hours depreciation is based in the theory


that purchase of an asset represents the purchase of
a number of hours of direct service.
Remember
• Both methods require an estimate of the life of the asset in terms of service hours or
production units in arriving at the depreciation rate to be assigned for each hour/unit of asset
use/produce.
• It is only applied when the object being depreciated will wear out after a given number of
hours of use or after being used a certain number of times.
• The depreciation is figured by making a fraction with use for the time period in the numerator
and total use in the denominator, and multiplying this fraction by total depreciation.
• In rare cases, this method is not applicable because the total operating hours and units
produced cannot be estimated with any degree of accuracy.
Formulas for this Method
Example 1
A machine cost 7,500 has a salvage value of 600. It is estimated that the
machine can produce 18,100 units. This machine is estimated to produce the
following:
1st year – 2,800 units 2nd year – 3,200 units
3rd year – 4,100 units 4th year – 5,500 units
5th year – 2,500 units
What are the depreciation charges of this asset?
Solution
Solution: Given: C = 7,500, S = 600,
TUP = 18,100 units
W= C - S
W= 7500 – 600
W= 6,900
Example 2
A corporation purchased a car which cost 41,000. Its residual value is 1,000
at the end of 5 years. The car is expected to run a total distance of 500,000
miles. Assume that the car is expected to be driven:
1st year – 150,000 miles 2nd year – 110,000 miles
3rd year – 100,000 miles 4th year – 85,000 miles
5th year – 55,000 miles
Find the depreciation charge and book value at year three. Make a table.
Solution
Solution: Given: C = 41,000, S =
1,000, n = 500,000 miles
W= C - S
W= 41000-1000
W = 40,000
Table
How to make table
• Solve the depreciation charge per year
• Subtract the Depreciation charge at year 1 from the Original Cost to get
the book value at year 1
• Repeat this method until you get before the last year.
• The final Adk will be the wearing value
• The final Bvk will be the salvage value.

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