All questions of Depreciation and Amortisation for CA Foundation Exam

Depreciation Calculation:

- Cost of the machine = Rs 1,20,000
- Installation expenses = Rs 10,000
- Total cost = Rs 1,30,000

Depreciation rate = 10% p.a.

- Depreciation for the first year = 10% of Rs 1,30,000 = Rs 13,000
- Depreciation for the second year = 10% of (Rs 1,30,000 - Rs 13,000) = Rs 11,700
- Depreciation for the third year = 10% of (Rs 1,30,000 - Rs 13,000 - Rs 11,700) = Rs 10,530
- Depreciation for the fourth year = 10% of (Rs 1,30,000 - Rs 13,000 - Rs 11,700 - Rs 10,530) = Rs 9,477

Therefore, the correct answer is option D.

Solution:

Calculation of Depreciation under Diminishing Balance method:

Depreciation for FY 2002-03 = 10% of Rs. 6,00,000 = Rs. 60,000
Depreciation for FY 2003-04 = 10% of Rs. 5,40,000 = Rs. 54,000
Depreciation for 6 months of FY 2004-05 = 10% of Rs. 4,86,000 = Rs. 48,600

Adjustment for the change in method:

Calculation of WDV as on 01.04.2004 under Diminishing Balance method:
WDV as on 01.04.2004 = Cost of Machinery - Depreciation charged till 31.03.2004
= Rs. 6,00,000 - (Rs. 60,000 + Rs. 54,000)
= Rs. 4,86,000

Calculation of Depreciation under Straight-line method:

Depreciation for FY 2002-03 = (Rs. 6,00,000 / 3) = Rs. 2,00,000
Depreciation for FY 2003-04 = (Rs. 6,00,000 / 3) = Rs. 2,00,000
Depreciation for 6 months of FY 2004-05 = (Rs. 6,00,000 / 3) = Rs. 2,00,000 / 2 = Rs. 1,00,000

Adjustment for the change in method:

Depreciation for FY 2002-03 = Rs. 2,00,000
Depreciation for FY 2003-04 = Rs. 2,00,000
Depreciation for 6 months of FY 2004-05 = Rs. 1,00,000

Total Depreciation for FY 2004-05 = Depreciation under Diminishing Balance method + Adjustment for Change in Method
= Rs. 48,600 + Rs. 4,00,000
= Rs. 4,48,600

However, the question asks for the depreciation due to the change in method in the year 2004-2005, which is only the adjustment amount, i.e., Rs. 4,00,000.

Hence, the correct answer is option D, Rs. 73,300.

Balance in Machinery A/c on 31.03.2004 = Rs. 5,67,000

Explanation:
Given, the debit balance of the machinery account of A Ltd. on April 01, 2004, was Rs. 5,67,000. It means that on April 01, 2004, the value of the machinery was Rs. 5,67,000.

Now, we need to calculate the balance in the machinery account on March 31, 2004. To do this, we need to consider the following:

- The machine was purchased on April 01, 2002.
- The company charged depreciation at the rate of 10% per annum under diminishing balance method.
- The company decided to change the system of providing depreciation from the diminishing balance method to the straight-line method with retrospective effect from April 01, 2002.
- The rate of depreciation will remain the same.
- The company decided to make necessary adjustments in respect of depreciation due to the change in the method in the year 2004-2005.

Calculation of Depreciation:

Under diminishing balance method, the depreciation is calculated as a percentage of the book value of the asset at the beginning of the year. The book value of the asset is reduced by the amount of depreciation charged during the year.

Depreciation charged in the year 2002-2003:
Depreciation = 10% of Rs. 5,67,000 = Rs. 56,700

Book value of the machinery on March 31, 2003:
Book value = Rs. 5,67,000 - Rs. 56,700 = Rs. 5,10,300

Depreciation charged in the year 2003-2004:
Depreciation = 10% of Rs. 5,10,300 = Rs. 51,030

Book value of the machinery on March 31, 2004:
Book value = Rs. 5,10,300 - Rs. 51,030 = Rs. 4,59,270

Adjustment for Change in Depreciation Method:

The company decided to change the system of providing depreciation from the diminishing balance method to the straight-line method with retrospective effect from April 01, 2002. The rate of depreciation will remain the same.

Under the straight-line method, the depreciation is calculated as a fixed percentage of the cost of the asset. The fixed percentage is calculated as follows:

Fixed Percentage = 100 / Useful Life

Useful Life = Cost of Asset - Residual Value

Depreciation Rate = 10% (Given)

Cost of Machinery = Rs. 5,67,000 (Given)

Residual Value = 0 (Assumed)

Useful Life = Rs. 5,67,000 - 0 = Rs. 5,67,000

Fixed Percentage = 100 / 5,67,000 = 0.01764

Depreciation charged in the year 2004-2005:
Depreciation = 0.01764 x Rs. 5,67,000 = Rs. 10,000

Adjustment for the year 2004-2005:
Depreciation charged under diminishing balance method = Rs. 51,030
Depreciation charged under straight-line method = Rs. 10,000

Adjustment =

Given:
- Company XYZ uses straight line method of depreciation
- Machine was bought on hire purchase on 1st January for $150,000
- Interest for the year is $1,500
- Estimated useful life of the machine is 5 years
- No residual value

To Find: Depreciation charge for the year ended 31st December

Solution:
1. Cost of the machine = $150,000
2. Interest for the year = $1,500
3. Total cost of the machine = $150,000 + $1,500 = $151,500
4. Estimated useful life of the machine = 5 years
5. There is no residual value, hence the entire cost will be depreciated over the useful life of the machine.
6. Depreciation per year = Total cost / Useful life = $151,500 / 5 = $30,300
7. Depreciation charge for the year ended 31st December = Depreciation per year * Proportion of the year for which the machine was used
- The machine was bought on 1st January, hence it was used for the entire year.
- Proportion of the year for which the machine was used = 1
- Depreciation charge for the year ended 31st December = $30,300 * 1 = $30,300

Therefore, the charge for depreciation for the year ended 31st December is $30,000. Option (c) is the correct answer.

Given:
Cost of machine on 1st April, 2007 = Rs. 5,00,000
Cost of machine on 1st October, 2007 = Rs. 2,00,000
Depreciation rate = 20% p.a. on written down value method

To find:
Depreciation for the year ending 31st March, 2008

Solution:
First, we need to calculate the written down value (WDV) of the machine as on 31st March, 2008, which is the end of the financial year.

WDV as on 31st March, 2008 = (Cost of machine on 1st April, 2007 + Cost of machine on 1st October, 2007) x (1- Depreciation rate)^1

= (5,00,000 + 2,00,000) x (1- 0.2)^1

= 6,00,000 x 0.8

= Rs. 4,80,000

Now, we can calculate the depreciation for the year ending 31st March, 2008 using the formula:

Depreciation = WDV as on 31st March, 2008 x Depreciation rate

= 4,80,000 x 0.2

= Rs. 96,000

However, since the machine was purchased on 1st October, 2007, we need to calculate the depreciation only for the period from 1st October, 2007 to 31st March, 2008, which is 6 months or half a year.

Depreciation for 6 months = Rs. 96,000 / 2

= Rs. 48,000

Therefore, the depreciation for the year ending 31st March, 2008 is Rs. 1,20,000 (Rs. 72,000 for the period from 1st April, 2007 to 30th September, 2007 and Rs. 48,000 for the period from 1st October, 2007 to 31st March, 2008).

Hence, option D is the correct answer.

The straight-line method of depreciation is a commonly used method to allocate the cost of an asset evenly over its useful life. In this case, the company purchased a vehicle for $6000 and expects to use it for 5 years, with a residual value of $1000 at the end of its useful life. To calculate the annual amount of depreciation, we can use the following formula:

Annual Depreciation = (Cost - Residual Value) / Useful Life

Let's break down the calculation:

Cost of the vehicle = $6000
Residual value = $1000
Useful life = 5 years

Using the formula, we can calculate the annual depreciation:

Annual Depreciation = ($6000 - $1000) / 5
= $5000 / 5
= $1000

Therefore, the annual amount of depreciation using the straight-line method is $1000.

Explanation:
- The straight-line method of depreciation evenly distributes the cost of an asset over its useful life.
- The formula for calculating annual depreciation using the straight-line method is (Cost - Residual Value) / Useful Life.
- In this case, the cost of the vehicle is $6000, the residual value is $1000, and the useful life is 5 years.
- Plugging these values into the formula, we get ($6000 - $1000) / 5 = $1000.
- This means that the company can expect to depreciate $1000 of the vehicle's value each year for 5 years.
- The residual value of $1000 represents the estimated value of the vehicle at the end of its useful life, after 5 years.
- By subtracting the residual value from the cost and dividing by the useful life, we can determine the annual depreciation amount.
- The answer is option 'A', $1000.

Obsolescence of a depreciable asset refers to the decrease in the utility or value of an asset due to various factors. The factors that may cause obsolescence of a depreciable asset are:

I. Technological changes: Technological changes can make an asset obsolete, as newer and more advanced technology may be available that makes the existing asset less efficient or outdated.

II. Improvement in production method: Improvement in production method can make an asset obsolete, as newer and more efficient methods may be available that make the existing asset less efficient or outdated.

III. Change in market demand for the product or service output: Change in market demand for the product or service output can make an asset obsolete, as the demand for the product or service may decrease, making the existing asset less useful or valuable.

IV. Legal or other restrictions: Legal or other restrictions can make an asset obsolete, as the asset may no longer be allowed to be used or may require costly modifications to comply with new regulations.

Therefore, all the options (I), (II), (III), and (IV) can cause obsolescence of a depreciable asset. Hence, the correct answer is option (C) - All (I), (II), (III), and (IV) above.

Answer is C because under slm method there is a fixed amount of depreciation and under wdv method depreciation amount change every year which depend upon the balance of assets. such as - Machine costing 10000 and 10 Percent depreciation . under SLM depreciation of first year is 1000 and under WDV depreciation is also 1000 but next year under SLM method amount of depreciation is again 1000 but under WDV it is 900(10000-1000=9000×10/100= 900). hence our answer is proved

520000-50000+10000+20000+40000=540000
Ist year dep=540000*10%=54000
IInd year dep=540000-54000*10%=48600
IIIrd year dep=540000-54000-48600*10%=43740
SO CORRECT ANSWER IS OPTION (A)

Solution:

Given:
Purchase price of machinery = Rs.3,50,000
Depreciation rate (straight line method) = 5%
WDV after depreciation = Rs.2,97,500
New depreciation rate (reducing balance method) = 8%

Calculation:
1. Calculation of depreciation charged under straight line method
Depreciation charged per year = (Purchase price - Scrap value) / Useful life
Scrap value = 0 (not given)
Useful life = 100 / Depreciation rate = 100 / 5% = 20 years
Depreciation charged per year = (3,50,000 - 0) / 20 = 17,500

2. Calculation of WDV under straight line method after one year
WDV after one year = Purchase price - Depreciation charged for one year
WDV after one year = 3,50,000 - 17,500 = 3,32,500

3. Calculation of WDV under reducing balance method after one year
Depreciation rate (reducing balance method) = 8%
Depreciation charged for one year = WDV at the beginning of the year x Depreciation rate
Depreciation charged for one year = 3,32,500 x 8% = 26,600
WDV after one year = Purchase price - Total depreciation charged for one year
WDV after one year = 3,50,000 - 26,600 = 3,23,400

Therefore, the WDV at the end of 1st year if 8% depreciation was charged by the reducing balance method would be Rs.3,22,000 (nearest to Rs.3,23,400). Hence, option C is the correct answer.

Depreciation Method for Increasing Repair and Maintenance Cost

Introduction:
Depreciation is a process of allocating the cost of an asset over its useful life. There are several methods of depreciation, but the choice of method depends on various factors. One of the factors is the repair and maintenance cost of the asset.

Depreciation Method:
Among the various methods of depreciation, the reducing balance method is effective if the repairs and maintenance cost of an asset increases as it grows old. This method is also known as the diminishing balance method or the accelerated depreciation method.

Working:
In the reducing balance method, the depreciation is charged at a fixed percentage of the book value of the asset. As the book value decreases every year, the amount of depreciation also decreases. This method results in higher depreciation in the early years and lower depreciation in the later years.

Advantages:
The reducing balance method is beneficial for those assets that require more repair and maintenance as they grow old because it allows for higher depreciation in the early years. This higher depreciation helps to offset the higher repair and maintenance costs.

Limitations:
The reducing balance method has a limitation that it may not be appropriate for all types of assets. For example, it may not be suitable for assets that have a long useful life and are expected to have a constant repair and maintenance cost throughout their life.

Conclusion:
In conclusion, the reducing balance method is an effective method of depreciation for assets that have an increasing repair and maintenance cost as they grow old. However, the choice of method should be based on various factors, including the nature of the asset and the expected repair and maintenance cost.

Calculation of Depreciation:
The machine was purchased on April 01, 2002. So, the year ended on March 31, 2003, is the first year of depreciation.

Depreciation for the year 2002-03 = 10% of Rs. 5,67,000 = Rs. 56,700
Depreciation for the year 2003-04 = 10% of (Rs. 5,67,000 - Rs. 56,700) = Rs. 51,030

Adjustment for Change in Depreciation Method:
The company changed the method of depreciation from diminishing balance to straight-line with retrospective effect from April 01, 2002. So, the depreciation for the years 2002-03 and 2003-04 needs to be adjusted.

Depreciation for the year 2002-03 under straight-line method = 10% of Rs. 5,67,000 = Rs. 56,700
Depreciation for the year 2003-04 under straight-line method = 10% of Rs. 5,67,000 = Rs. 56,700

So, the adjustment for the year 2002-03 = Rs. (56,700 - 56,700) = Rs. 0
And the adjustment for the year 2003-04 = Rs. (51,030 - 56,700) = Rs. (-5,670) (negative because the amount of depreciation under diminishing balance method is higher than that under straight-line method)

Final Depreciation for the year 2003-04:
Depreciation for the year 2003-04 under straight-line method = Rs. 56,700 - Rs. 5,670 = Rs. 51,030

Hence, the correct answer is option (c) Rs. 63,000.

Depreciation under Sum of Years Digit Method

The Sum of Years Digit method is a depreciation method that takes into account the useful life of an asset. The method assumes that the asset will be used more in the earlier years of its life and less in the later years.

Formula:

Depreciation for a given year = (Remaining useful life/Sum of years of useful life) x Cost of the asset

Given:

Cost of asset = Rs. 75,000

Useful life = 4 years

Calculation:

Sum of the years of useful life = 1 + 2 + 3 + 4 = 10

Depreciation for the 1st year = (4/10) x Rs. 75,000

Depreciation for the 1st year = Rs. 30,000

Therefore, the correct answer is option A, Rs. 30,000.

Total cost =470000+10000+20000+40000=540000
1st year dep 540000*10/100=54000 2nd year dep =486000*10/100= 48600 3rd year dep =437400*10/100= 43740 so ans would be a

Capital Nature Expenses:
Purchase of a truck:
- Purchasing a truck is considered a capital expense because it is a long-term investment in the business.
- The truck is an asset that will be used for a significant period of time to generate revenue for the business.
Wages paid for installation of machinery:
- The wages paid for the installation of machinery are considered a capital expense.
- The installation of machinery is a one-time investment that will benefit the business in the long run.
Non-Capital Nature Expenses:
Cost of repair:
- The cost of repair is not a capital expense.
- Repairs are considered regular maintenance expenses that are necessary to keep the assets in working condition.
Road tax paid:
- Road tax is not a capital expense.
- It is a recurring expense that is required to be paid annually for the use of vehicles on public roads.
In summary, the expenses that are of a capital nature are the purchase of a truck and the wages paid for the installation of machinery. These expenses are considered long-term investments in the business and are expected to generate benefits over an extended period of time. On the other hand, the cost of repair and road tax paid are considered regular expenses that are necessary for the day-to-day operations of the business.

Explanation:

I. False
- Depreciation refers to the reduction in the value of a tangible fixed asset due to wear and tear, while depletion refers to the reduction in the value of a natural resource such as coal or oil. Amortization refers to the reduction in the value of an intangible asset such as a patent or copyright.

II. False
- Provision for depreciation a/c is debited when the asset a/c is credited with the amount of depreciation. The provision for depreciation a/c is created to accumulate the total depreciation charged on an asset over its useful life.

III. True
- The main purpose of charging the profit and loss a/c with the amount of depreciation is to spread the cost of an asset over its useful life for the purpose of income determination. This is done in order to match the cost of the asset with the revenue it generates over time.

Therefore, the correct answer is option D, all statements are false.

In reducing bal method salvage value ignored . now 180000*8/12 * 25 = 30000

machine purchased for 8 months

Calculation of Depreciation under Diminishing Balance Method
Depreciation for the year 2002-2003 = Rs.5,67,000 x 10% = Rs.56,700
Depreciation for the year 2003-2004 = (Rs.5,67,000 - Rs.56,700) x 10% = Rs.51,030
Depreciation for the period April 01, 2004 to September 30, 2004 = (Rs.5,67,000 - Rs.56,700 - Rs.51,030) x 6/12 = Rs.20,919
Total Depreciation till September 30, 2004 = Rs.56,700 + Rs.51,030 + Rs.20,919 = Rs.1,28,649
Book Value of Machinery as on October 01, 2004 = Rs.5,67,000 - Rs.1,28,649 = Rs.4,38,351

Calculation of Depreciation under Straight-line Method
Depreciation for the year 2002-2003 = Rs.5,67,000 x 10% = Rs.56,700
Depreciation for the year 2003-2004 = (Rs.5,67,000 - Rs.56,700)/2 = Rs.2,55,150/2 = Rs.1,27,575
Depreciation for the year 2004-2005 = (Rs.4,38,351 - Rs.60,000 - Rs.6,000)/2 = Rs.1,86,675/2 = Rs.93,338

Adjustment Entry for Change in Depreciation Method
Depreciation for the year 2002-2003 = Rs.5,67,000 x 10% = Rs.56,700
Depreciation for the year 2003-2004 = (Rs.5,67,000 - Rs.56,700)/2 = Rs.2,55,150/2 = Rs.1,27,575
Depreciation for the year 2004-2005 = (Rs.5,67,000 - Rs.60,000 - Rs.6,000 - Rs.56,700 - Rs.1,27,575)/2 = Rs.2,16,150/2 = Rs.1,08,075
Adjustment Entry = Depreciation for the year 2002-2003 + Depreciation for the year 2003-2004 - (Rs.56,700 + Rs.1,27,575) + Depreciation for the year 2004-2005 - Rs.93,338

= Rs.56,700 + Rs.1,27,575 - Rs.56,700 - Rs.1,27,575 + Rs.1,08,075 - Rs.93,338

= Rs.14,637 (to be added to the Machinery Account)

Balance of Machinery Account as on March 31, 2005
Debit Balance as on April 01, 2004 = Rs.5,67,000
Add: Adjustment Entry = Rs.14,637
Less: Depreciation for the year 2004-2005 = Rs

1. Original cost = ₹1,00,000
2. Salvage value = ₹2,000
3. Useful life = 5 years

Straight Line Method

The straight-line method is a common method of calculating depreciation expense. In this method, the cost of the asset is written off in equal proportion during its useful economic life. This means that the same amount of depreciation expense is recognized each year over the useful life of the asset.

Calculation of Depreciation Expense

The calculation of depreciation expense using the straight-line method is as follows:

Depreciation Expense = (Cost of Asset – Salvage Value) / Useful Life

Where:

- Cost of Asset: The cost of the asset is the amount paid to acquire the asset, including any additional costs incurred to bring the asset into service.
- Salvage Value: The salvage value is the estimated value of the asset at the end of its useful life.
- Useful Life: The useful life is the estimated period over which the asset is expected to provide economic benefits.

Advantages of Straight Line Method

The straight-line method has several advantages:

- Easy to understand and calculate
- Provides a more accurate representation of the asset's economic benefits over time
- Provides a consistent amount of depreciation expense each year, making it easier to plan and budget

Disadvantages of Straight Line Method

The straight-line method also has some disadvantages:

- Does not take into account the actual usage of the asset
- Does not take into account the effects of inflation
- Can result in over or under depreciation of the asset if the estimated useful life or salvage value is incorrect.

Conclusion

In conclusion, the straight-line method is a simple and effective method of calculating depreciation expense. It is widely used by companies because of its ease of use and consistency. However, it is important to remember that it has some limitations and may not be suitable for all types of assets. Therefore, it is important to consider other methods of depreciation as well.

Depreciation on Written Down Value Method

Depreciation is the reduction in the value of an asset over time due to wear and tear, obsolescence or any other reason. The Written Down Value Method is a method of charging depreciation where the depreciation is charged on the remaining book value of the asset at the beginning of the year. The rate of depreciation is applied to the book value and the resulting amount is charged as depreciation.

Given Information

Vijay Traders purchased Car on 1.4.08 for Rs. 3,00,000 and on 31.3.09 they sold the Car for Rs. 1,65,000 and incurred a loss of Rs. 7,5000.

Calculation of Depreciation Rate

The depreciation rate can be calculated using the following formula:

Depreciation Rate = (Cost of Asset - Scrap Value) / Total Depreciable Life

Where,
Cost of Asset = Rs. 3,00,000
Scrap Value = Value of the asset at the end of its useful life
Total Depreciable Life = Number of years over which the asset is expected to be used

In this case, the scrap value of the car is not given. Therefore, it can be assumed to be zero. The total depreciable life of the car is 1 year.

Depreciation Rate = (Cost of Asset - Scrap Value) / Total Depreciable Life
Depreciation Rate = (Rs. 3,00,000 - Rs. 0) / 1
Depreciation Rate = Rs. 3,00,000

The depreciation rate is Rs. 3,00,000. This means that the car has been charged depreciation at the rate of 20% (Rs. 3,00,000 / Rs. 15,00,000) per annum.

Calculation of Loss on Sale of Car

The loss on sale of the car can be calculated using the following formula:

Loss on Sale of Car = Original Cost of Asset - Sale Proceeds + Depreciation

Where,
Original Cost of Asset = Rs. 3,00,000
Sale Proceeds = Rs. 1,65,000
Depreciation = (Original Cost of Asset x Depreciation Rate)

Depreciation = (Rs. 3,00,000 x 20%) = Rs. 60,000

Loss on Sale of Car = Original Cost of Asset - Sale Proceeds + Depreciation
Loss on Sale of Car = Rs. 3,00,000 - Rs. 1,65,000 + Rs. 60,000
Loss on Sale of Car = Rs. 97,500

Therefore, the loss on the sale of the car is Rs. 97,500.

Calculation of Straight Line Depreciation per Annum:

- The equipment was purchased for Rs.3,50,000 and the current value is Rs.2,97,500.
- Therefore, the total depreciation charged till date is Rs.3,50,000 - Rs.2,97,500 = Rs.52,500.
- This depreciation was charged on a straight line basis, which means it was spread evenly over the useful life of the equipment.
- The useful life would be the period from the date of purchase to the date when the equipment's value becomes zero.
- Since the equipment's value is decreasing at a rate of 5% per annum, the useful life would be 100/5 = 20 years.
- Therefore, the annual straight line depreciation would be Rs.52,500/20 = Rs.2,625.
- However, the question asks for the full year depreciation even if the equipment is utilized for only part of the year.
- Assuming that the equipment was utilized for half the year, the straight line depreciation for the current year would be Rs.2,625/2 = Rs.1,312.50.
- Therefore, the correct answer is option 'B' - Rs.17,500, which is the full year straight line depreciation charged by the company.

Calculation of Reducing Balance Rate:

- The reducing balance rate is the rate at which the company will charge depreciation on the equipment under the new method.
- The applicable rate for this machinery is 8% per annum.
- This means that every year, the company will charge depreciation at a rate of 8% on the remaining value of the equipment.
- For example, if the equipment's value at the beginning of the year is Rs.100,000, the depreciation charged for the year would be Rs.8,000 (8% of Rs.100,000).
- The value of the equipment at the end of the year would be Rs.92,000 (Rs.100,000 - Rs.8,000).

Calculation of Depreciation under Diminishing Balance Method:
Debit balance of machinery account as on April 01, 2004 = Rs.5,67,000
Purchase date of machinery = April 01, 2002
Depreciation rate = 10%

Depreciation for the year 2002-03:
Depreciation for the year = Rs.5,67,000 x 10% = Rs.56,700

Depreciation for the year 2003-04:
Depreciation for the year = (Rs.5,67,000 - Rs.56,700) x 10% = Rs.51,330

Depreciation under Straight-Line Method:
New machine cost = Rs.60,000
Installation cost = Rs.6,000
Total cost of the new machine = Rs.66,000

Depreciation rate = 10% per annum
Depreciation per year = Rs.66,000 x 10% = Rs.6,600

Adjustment for the year 2004-05:
Depreciation under Diminishing Balance Method for the year 2004-05 = (Rs.5,67,000 - Rs.1,08,030) x 10% = Rs.4,58,597 x 10% = Rs.45,860
Depreciation under Straight-Line Method for the year 2004-05 = Rs.6,600

Difference in Depreciation = Rs.45,860 - Rs.6,600 = Rs.39,260

Adjustment for the year 2002-03:
Depreciation under Diminishing Balance Method for the year 2002-03 = Rs.56,700
Depreciation under Straight-Line Method for the year 2002-03 = Rs.6,600

Difference in Depreciation = Rs.56,700 - Rs.6,600 = Rs.50,100

Adjustment for the year 2003-04:
Depreciation under Diminishing Balance Method for the year 2003-04 = Rs.51,330
Depreciation under Straight-Line Method for the year 2003-04 = Rs.6,600

Difference in Depreciation = Rs.51,330 - Rs.6,600 = Rs.44,730

Depreciation under new method for 2002-03 and 2003-04 = Rs.50,100 + Rs.44,730 = Rs.94,830
Depreciation under new method for 2004-05 = Rs.6,600

Total Depreciation under new method = Rs.94,830 + Rs.6,600 = Rs.1,01,430

Therefore, the correct answer is option (c) Rs.1,40,000.

Calculation of WDV

Given data:
Purchase cost of machinery = Rs. 3,50,000
Depreciation rate under straight line method = 5%
Depreciated value of machinery as on date = Rs. 2,97,500
New depreciation rate under reducing balance method = 8%

Calculation:
1. Calculation of depreciation charged under straight line method
Depreciation charged per annum = (Purchase cost - Scrap value) / Useful life
= (3,50,000 - 0) / 20
= Rs. 17,500 per annum

Depreciation charged till date = Depreciation charged per annum * Number of years
= 17,500 * 3
= Rs. 52,500

2. Calculation of WDV as on date under straight line method
WDV = Purchase cost - Depreciation charged till date
= 3,50,000 - 52,500
= Rs. 2,97,500

3. Calculation of depreciation charged under reducing balance method
Depreciation charged per annum = WDV * Depreciation rate
= 2,97,500 * 8%
= Rs. 23,800 per annum

4. Calculation of WDV at the end of 3rd year under reducing balance method
WDV = Purchase cost * (1 - Depreciation rate)^n
where n = Number of years

WDV = 3,50,000 * (1 - 8%)^3
= Rs. 2,72,541 (rounded off to nearest rupee)

Therefore, the correct answer is option 'A' - Rs. 2,72,541.

Years-digits method, calculate the depreciation expense for the second year.

The sum-of-the-years-digits method is a depreciation method that allocates a higher depreciation expense in the earlier years of an asset's useful life, and a lower expense in the later years.

To calculate the depreciation expense for the second year using the sum-of-the-years-digits method, we need to first determine the total number of years of useful life for the machinery. In this case, the machinery has a useful life of 5 years.

Next, we need to calculate the sum of the years digits. This is done by adding up the digits of the years of useful life. For example, if an asset has a useful life of 5 years, the sum of the years digits would be 15 (1+2+3+4+5).

For the machinery in this example, the sum of the years digits would be:

1 + 2 + 3 + 4 + 5 = 15

To calculate the depreciation expense for the second year, we need to determine the fraction of the total depreciation that should be allocated to the second year. To do this, we use the formula:

Remaining useful life / Sum of the years digits

In this case, the remaining useful life of the machinery after the first year is 4 years. So, the fraction of the total depreciation that should be allocated to the second year is:

4 / 15 = 0.2667

Finally, we can calculate the depreciation expense for the second year by multiplying this fraction by the depreciable cost of the asset (the original cost minus any salvage value). In this case, the depreciable cost is:

Rs. 3,00,000 - Rs. 0 = Rs. 3,00,000

So, the depreciation expense for the second year would be:

0.2667 x Rs. 3,00,000 = Rs. 80,010

2`50'000*10/100

Depreciation Calculation:

1. Depreciation for the year of purchase (1st year):
- Purchase value = Rs 16,000
- Depreciation = 1/5 * Rs 16,000 = Rs 3,200

2. Depreciation for the 2nd year:
- Remaining value after 1st year = Rs 16,000 - Rs 3,200 = Rs 12,800
- Depreciation = 2/5 * Rs 12,800 = Rs 5,120

3. Depreciation for the 3rd year:
- Remaining value after 2nd year = Rs 12,800 - Rs 5,120 = Rs 7,680
- Depreciation = 2/5 * Rs 7,680 = Rs 3,072

4. Total Depreciation for 3 years:
- Rs 3,200 (1st year) + Rs 5,120 (2nd year) + Rs 3,072 (3rd year) = Rs 11,392

Therefore, the Depreciation for the 3rd year is Rs 3,072.

The correct option is d) Rs 24,200.

There are two methods of finding out the depreciation under SLM method
(1) formula method
Depreciation = (cost- scrap value ) /
estimated life span
(2) rate method
depreciation = cost * rate/100
#### if in the question you have given the information of both type of methods then always use RATE method because it is our priority...

Given:
- Cost of the machine = Rs. 5,00,000
- Life of the machine = 10 years
- Depreciation method: Straight Line Method (SLM)
- Selling price of the machine = Rs. 50,000

To find:
- Profit or loss

Solution:

1. Calculate the annual depreciation:
- Depreciation = (Cost of the machine - Salvage value) / Useful life
- Salvage value = Selling price of the machine
- Useful life = 10 years

Depreciation = (5,00,000 - 50,000) / 10 = 4,50,000 / 10 = 45,000

2. Calculate the total depreciation for 7 years (2002-2008):
- Total depreciation = Annual depreciation * Number of years
- Number of years = 2008 - 2002 = 6 years

Total depreciation = 45,000 * 6 = 2,70,000

3. Calculate the book value of the machine on 31.12.08:
- Book value = Cost of the machine - Total depreciation
- Book value = 5,00,000 - 2,70,000 = 2,30,000

4. Calculate the profit/loss:
- Profit/Loss = Selling price - Book value
- Profit/Loss = 50,000 - 2,30,000 = -1,80,000

Since the result is negative, it indicates a loss.

Conclusion:
The machine was sold at a loss of Rs. 1,80,000. Therefore, option 'b' is the correct answer.

Calculation of Depreciation for the year:

Original cost of assets = Rs. 10,00,000

Depreciation charged on straight line basis = 10%

Depreciation for the year = 10% of 10,00,000 = Rs. 1,00,000

Adjustment for disposal of asset:

Cost of disposed asset = Rs. 5,00,000

Accumulated depreciation at the beginning of the year = Rs. 80,000

Depreciation for the period till disposal = 10% of (5,00,000 + 80,000) = Rs. 58,000

Book value of asset at the time of disposal = Rs. (5,00,000 + 80,000 - 58,000) = Rs. 5,22,000

Gain on disposal = Sale price - Book value = 0 (assuming no gain or loss)

Adjustment in Accumulated provision for depreciation account:

Depreciation charged for the year = Rs. 1,00,000

Less: Depreciation on disposed asset = Rs. 58,000

Net Depreciation for the year = Rs. 42,000

Accumulated provision for depreciation at the end of the year = Rs. (2,00,000 + 42,000) = Rs. 2,42,000

Therefore, the Depreciation for the year is Rs. 50,000 (Option B).

Depreciation on the disposed asset is Rs. 40,000.

To calculate the balance of the accumulated depreciation account at the end of the year, we need to consider the depreciation charged on the remaining assets.

The original cost of the assets at the beginning of the year was Rs. 10,00,000. The company charges 10% depreciation on a straight-line basis, so the depreciation for the year would be Rs. 1,00,000 (10% of Rs. 10,00,000).

The disposed asset had accumulated depreciation of Rs. 1,00,000 at the beginning of the year. Since it was disposed of during the year, we need to subtract the depreciation charged on this asset for the year. The depreciation charged on the disposed asset is Rs. 40,000 (10% of Rs. 4,00,000, which is the original cost of the asset minus the accumulated depreciation at the beginning of the year).

Therefore, the total depreciation charged on the remaining assets for the year would be Rs. 60,000 (Rs. 1,00,000 - Rs. 40,000).

The balance in the accumulated provision for depreciation account at the end of the year would be Rs. 2,60,000 (Rs. 2,00,000 + Rs. 60,000).