Explain about Mileage method of depreciation.

Banking & FinanceFinanceFinance Management

The mileage method of depreciation is carried out on vehicles (cars, buses, etc.). In this method, depreciation is calculated based on number of kilometres travelled by the vehicle and asset means vehicle.

Formula

Depreciation amount = (Ca-SVa) / TLa

Here, Ca = cost of asset, SVa = scrap value of asset, TLa = total life of the asset.

This method is applied if the following conditions are met −

  • Asset life can be calculated in kilometres.
  • Asset life is certain.

Example

  • A firm purchases an asset worth of Rs. 1500000/- and scrape value is Rs.200000/-. Expected life of an asset will be 150000 KMS. The asset travelled 8000, 12000, 9700, 10000, 10800 respectively in next 5 years. Calculate deprecation using mileage method.

Solution

The solution is as follows −

Cost of asset = 1500000/- Salvage value = 200000/- Total life of asset = 150000

                    Depreciation amount = (Ca-SVa) / TLa

           Here Ca = cost of asset, SVa = scrap value of asset, TLa = total life of the asset

           Depreciation amount = (Ca-SVa) / TLa

                    = (150000 – 200000)/150000

                    = = 8.67 per KM

              Amount depreciated year by year will be shown in the following table −

YearDistance travelledDepreciation amount per KMYearly depreciation
180008.6769360
2120008.67104040
397008.6784099
4100008.6786700
5108008.6793636
raja
Published on 29-Sep-2020 13:48:33
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