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All questions of Depreciation and Amortisation for CA Foundation Exam
Amit Ltd. purchased a machine on 01.01.2003 for Rs 1,20,000. Installation expenses were Rs 10,000. Residual value after 5 years Rs 5,000. On 01.07.2003, expenses for repairs were incurred to the extent of Rs 2,000. Depreciation is provided @ 10% p.a. under written down value method. Depreciation for the 4th year = ________.- a)25,000
- b)10530
- c)9,477
- d)13,000
Correct answer is option 'D'. Can you explain this answer?
Amit Ltd. purchased a machine on 01.01.2003 for Rs 1,20,000. Installation expenses were Rs 10,000. Residual value after 5 years Rs 5,000. On 01.07.2003, expenses for repairs were incurred to the extent of Rs 2,000. Depreciation is provided @ 10% p.a. under written down value method. Depreciation for the 4th year = ________.
a)
25,000
b)
10530
c)
9,477
d)
13,000
|
KP Classes answered |
To calculate the depreciation for the 4th year using the Written Down Value (WDV) method, we follow these structured steps:
- Determine the initial cost of the machinery. The purchase price is Rs. 1,20,000, and the installation expenses are Rs. 10,000. Therefore, the total value of the machinery is calculated as follows:
Total Value = Purchase Price + Installation Expenses = 1,20,000 + 10,000 = 1,30,000 - Calculate the depreciation for the first year. The rate of depreciation is 10% on the WDV. Thus, the first-year depreciation is:
- Calculate the WDV at the beginning of the second year:
WDV after 1st Year = Total Value − 1st Year Depreciation = 1,30,000 − 13,000 = 1,17,000 - Calculate the depreciation for the second year:
- Calculate the WDV at the beginning of the third year:
WDV after 2nd Year = WDV after 1st Year − 2nd Year Depreciation = 1,17,000 − 11,700 = 1,05,300 - Calculate the depreciation for the third year:
- Calculate the WDV at the beginning of the fourth year:
WDV after 3rd Year = WDV after 2nd Year − 3rd Year Depreciation = 1,05,300 − 10,530 = 94,770 - Finally, calculate the depreciation for the fourth year:
On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
Depreciation provided in 2002-03 = ______.
- a)Rs. 56,700
- b)Rs. 63,000
- c)Rs. 70,000
- d)Rs. 77,778
Correct answer is option 'C'. Can you explain this answer?
On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
Depreciation provided in 2002-03 = ______.
a)
Rs. 56,700
b)
Rs. 63,000
c)
Rs. 70,000
d)
Rs. 77,778
|
Freedom Institute answered |
Balance on 1april ,2004is 567000 .
it means that credit balance on 31march ,2004 is also 567000.
let the balance on 1april 2003 be x.
then depreciation will be 10%of x i.e.
10x ÷100= x/10 from this we can understand that x- x/10 =567000 .
here we found thae value of which is 630000.
same process we will follow for the year 2002 to 2003 x-x/10=630000 and value of x is 700000.
so depreciation will be 10% of 7lack that 70000
it means that credit balance on 31march ,2004 is also 567000.
let the balance on 1april 2003 be x.
then depreciation will be 10%of x i.e.
10x ÷100= x/10 from this we can understand that x- x/10 =567000 .
here we found thae value of which is 630000.
same process we will follow for the year 2002 to 2003 x-x/10=630000 and value of x is 700000.
so depreciation will be 10% of 7lack that 70000
Original cost = Rs.1,26,000; Salvage value = Nil; Useful life = 6 years. Depreciation for the first year under sum of years digits method will be
- a)Rs.6,000
- b)Rs. 12,000
- c)Rs. 36,000
- d)Rs. 24,000
Correct answer is option 'C'. Can you explain this answer?
Original cost = Rs.1,26,000; Salvage value = Nil; Useful life = 6 years. Depreciation for the first year under sum of years digits method will be
a)
Rs.6,000
b)
Rs. 12,000
c)
Rs. 36,000
d)
Rs. 24,000
|
|
Freedom Institute answered |
Option C is correct.
Sum of years = 1+2+3+4+5+6 = 21
Original Cost = 1,26,000
Sum of years = 1+2+3+4+5+6 = 21
Original Cost = 1,26,000
Depreciation = 1,26,000*3/21
= 18,000.
= 18,000.
Original cost = Rs.1,26,000; Salvage value = Nil; Useful life = 6 years. Depreciation for the first year under sum of years digits method will be- a)Rs.6,000
- b)Rs. 12,000
- c)Rs. 18,000
- d)Rs. 36,000
Correct answer is option 'D'. Can you explain this answer?
Original cost = Rs.1,26,000; Salvage value = Nil; Useful life = 6 years. Depreciation for the first year under sum of years digits method will be
a)
Rs.6,000
b)
Rs. 12,000
c)
Rs. 18,000
d)
Rs. 36,000
|
Deepika Nambiar answered |
Original cost = Rs.1,26,000
Salvage value = Nil
Useful life = 6 years
Depreciation for the first year under sum of years digits method:
On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
Depreciation for the year 2004-05 = _________.
- a)Rs. 3,300
- b)Rs. 7,000
- c)Rs. 10,300
- d)Rs. 60,000
Correct answer is option 'D'. Can you explain this answer?
On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
Depreciation for the year 2004-05 = _________.
a)
Rs. 3,300
b)
Rs. 7,000
c)
Rs. 10,300
d)
Rs. 60,000
|
|
Arka Tiwari answered |
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.
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.
Which of the following is not true with regard to fixed assets?- a)They are acquired for using them in the conduct of business operations
- b)They are not meant for resale to earn profit
- c)They can easily be converted into cash
- d)Depreciation at specified rates is to be charged on most of the fixed assets
Correct answer is option 'C'. Can you explain this answer?
Which of the following is not true with regard to fixed assets?
a)
They are acquired for using them in the conduct of business operations
b)
They are not meant for resale to earn profit
c)
They can easily be converted into cash
d)
Depreciation at specified rates is to be charged on most of the fixed assets
|
Poonam Reddy answered |
The correct option is C.
Fixed assets are not readily liquid and cannot be easily converted into cash. They are not sold or consumed by a company. Instead, the asset is used to produce goods and services.
The term “fixed” translates to the fact that these assets will not be used up or sold within the accounting year. A fixed asset typically has a physical form and is reported on the balance sheet as property, plant, and equipment
Original cost = Rs 1,26,000. Salvage value = 6,000. Depreciation for 2nd year @ 10% p.a. under WDV method =
- a)11,340
- b)10,800
- c)15,000
- d)14,000
Correct answer is option 'B'. Can you explain this answer?
Original cost = Rs 1,26,000. Salvage value = 6,000. Depreciation for 2nd year @ 10% p.a. under WDV method =
a)
11,340
b)
10,800
c)
15,000
d)
14,000
|
|
Pj Commerce Academy answered |
Depreciation = Opening Book value * rate of depreciation
Original cost = Rs 1,26,000. Salvage value = 6,000. Useful Life = 6 years. Annual depreciation under SLM =- a)21,000
- b)20,000
- c)15,000
- d)14,000
Correct answer is option 'B'. Can you explain this answer?
Original cost = Rs 1,26,000. Salvage value = 6,000. Useful Life = 6 years. Annual depreciation under SLM =
a)
21,000
b)
20,000
c)
15,000
d)
14,000
|
Nipun Tuteja answered |
To calculate the annual depreciation using the Straight-Line Method (SLM), we follow a systematic approach
- Identify the variables involved in the calculation. We have:
- Original Cost (C) = Rs. 126,000
- Salvage Value (S) = Rs. 6,000
- Useful Life (L) = 6 years
- Apply the formula for annual depreciation (D) under the Straight-Line Method, which is given by:
- Substitute the identified values into the formula:
- Simplify the equation. First, calculate the difference between the original cost and the salvage value:
126000 - 6000 = 120000 - Now, divide this result by the useful life:
Thus, the annual depreciation under the Straight-Line Method is Rs. 20,000
A company purchased a vehicle for $6000. I will be used for 5 years and its residual value is expected to be $1000. What is the annual amount of deprecation using straight line method of depreciation? - a) $1000
- b) $2000
- c) $3000
- d) $3300
Correct answer is option 'A'. Can you explain this answer?
A company purchased a vehicle for $6000. I will be used for 5 years and its residual value is expected to be $1000. What is the annual amount of deprecation using straight line method of depreciation?
a)
$1000
b)
$2000
c)
$3000
d)
$3300
|
|
Meera Joshi answered |
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.
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.
On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
Balance in Machinery A/c on 31.03.2004 = _______.
- a)Rs. 5,67,000
- b)Rs. 6,30,000
- c)Rs. 7,00,000
- d)Rs. 7,77,778
Correct answer is option 'A'. Can you explain this answer?
On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
Balance in Machinery A/c on 31.03.2004 = _______.
a)
Rs. 5,67,000
b)
Rs. 6,30,000
c)
Rs. 7,00,000
d)
Rs. 7,77,778
|
|
KP Classes answered |
Given:
- Purchase date of machine: April 01, 2002
- Cost of the machine: Not explicitly provided in the current question, but from previous calculations, it was ₹6,30,000.
- Depreciation method used until March 31, 2004: Diminishing Balance Method (DBM) at 10% per annum.
- Debit balance of the machinery account on April 01, 2004: ₹5,67,000.
Step 1: Calculate depreciation for 2002-03
Since the company initially used the Diminishing Balance Method at 10% per annum:
- Opening balance on April 01, 2002: ₹6,30,000
- Depreciation for 2002-03 = ₹6,30,000 × 10% = ₹63,000
- Closing balance on April 01, 2003:
6,30,000 − 63,000 = ₹5,67,000
Step 2: Calculate depreciation for 2003-04
- Opening balance on April 01, 2003: ₹5,67,000
- Depreciation for 2003-04 = ₹5,67,000 × 10% = ₹56,700
- Closing balance on March 31, 2004:
5,67,000 − 56,700 = ₹5,10,300
The balance in the machinery account on 31.03.2004 is ₹5,67,000.
In the books of D Ltd. the machinery account shows a debit balance of Rs.60,000 as on April 1,2003.The machinery was sold on September 30,2004 for Rs.30,000. The company charges depreciation @20% p.a. on diminishing balance method. Q.Depreciation for 2004-05 =- a)6,000
- b)9.000
- c)4,800
- d)12,000
Correct answer is option 'C'. Can you explain this answer?
In the books of D Ltd. the machinery account shows a debit balance of Rs.60,000 as on April 1,2003.The machinery was sold on September 30,2004 for Rs.30,000. The company charges depreciation @20% p.a. on diminishing balance method.
Q.Depreciation for 2004-05 =
a)
6,000
b)
9.000
c)
4,800
d)
12,000
|
Srsps answered |
Correct Answer :- c
Explanation : Dep for April 2004 to March 2005
60000 - 20/100 * 60000
= 48000
Dep for April 2005 to Sep 2005(6 months)
= 6/12 * 48000 * 20/100
= 4800
Original cost = Rs 1,26,000. Salvage value = 6,000. Depreciation for 2nd year @ Units of Production Method, if units produced in 2nd year was 5,000 and total estimated production 50,000.- a)10,800
- b)11,340
- c)12,600
- d)12,000
Correct answer is option 'D'. Can you explain this answer?
Original cost = Rs 1,26,000. Salvage value = 6,000. Depreciation for 2nd year @ Units of Production Method, if units produced in 2nd year was 5,000 and total estimated production 50,000.
a)
10,800
b)
11,340
c)
12,600
d)
12,000
|
|
KP Classes answered |
Given:
- Original cost = ₹1,26,000
- Salvage value = ₹6,000
- Units produced in 2nd year = 5,000 units
- Total estimated production = 50,000 units
Step 1: Calculate depreciable amount
Depreciable amount = Original cost - Salvage value
Depreciable amount = ₹1,26,000 − ₹6,000 = ₹1,20,000
Step 2: Calculate depreciation per unit
Step 3: Calculate depreciation for 2nd year
Step 3: Calculate depreciation for 2nd year
Depreciation for 2nd year = Depreciation per unit × Units produced in 2nd year
Depreciation for 2nd year = ₹2.40 × 5,000 = ₹12,000
The depreciation for the 2nd year is ₹12,000, so the correct answer is Option D: ₹12,000.
Which of the following expenses is not included in the acquisition cost of a plant and equipment?
a)Financing costs incurred subsequent to the period after plant and equipment is put to use.
b)Delivery and handling charges
c)Installation costs
d)Cost of site preparation
Correct answer is option 'A'. Can you explain this answer?
|
Mehul Saini answered |
The cost of equipment, vehicles, and furniture includes the purchase price, sales taxes, transportation fees, insurance paid to cover the item during shipment, assembly, installation, Delivery and handling charges and all other costs associated with making the item ready for use.
Company XYZ uses the straight line method of depreciation for all its fixed assets. On 1 January it bought a machine on hire purchase. The cash price was $150,000 and the interest for the year is %16,500. The estimated useful life of the mahine is five years with no residual value. What is the charge for depreciation for the year ended 31 December?
- a)$15,500
- b)$26,900
- c)$30,000
- d)$42,550
Correct answer is option 'C'. Can you explain this answer?
Company XYZ uses the straight line method of depreciation for all its fixed assets. On 1 January it bought a machine on hire purchase. The cash price was $150,000 and the interest for the year is %16,500. The estimated useful life of the mahine is five years with no residual value. What is the charge for depreciation for the year ended 31 December?
a)
$15,500
b)
$26,900
c)
$30,000
d)
$42,550
|
|
Gayatri Khanna answered |
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.
- 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.
A machine was purchased on 1st April, 2007 for Rs. 5,00,000 and 1st October, 2007 for Rs. 2,00,000. Calculate depreciation @ 20% p.a. on written down value method for the year ending 31st March, 2008.- a)Rs. 1,00,000
- b)Rs. 1,40,000
- c)Rs. 40,000
- d)Rs. 1,20,000
Correct answer is option 'D'. Can you explain this answer?
A machine was purchased on 1st April, 2007 for Rs. 5,00,000 and 1st October, 2007 for Rs. 2,00,000. Calculate depreciation @ 20% p.a. on written down value method for the year ending 31st March, 2008.
a)
Rs. 1,00,000
b)
Rs. 1,40,000
c)
Rs. 40,000
d)
Rs. 1,20,000
|
|
Subhankar Sen answered |
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.
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.
On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
Cost of machinery on 01.04.2002 = ________.
- a)Rs. 5,67,000
- b)Rs. 6,30,000
- c)Rs. 7,00,000
- d)Rs. 7,77,778
Correct answer is option 'C'. Can you explain this answer?
On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
Cost of machinery on 01.04.2002 = ________.
a)
Rs. 5,67,000
b)
Rs. 6,30,000
c)
Rs. 7,00,000
d)
Rs. 7,77,778
|
|
Sparsh Chauhan answered |
Let machinery on 1.04.2002 be x.
so 1st year depreciation will be x × 10/100 = x/10.
2nd year depreciation will be (x - x/10) × 10/100 = 9x/100.
so total depreciation will be x/10 + 9x/100 = 19x/100.
Therefore value of machinery on 01.04.2002 will be
x - 19x/100 = 567000
ie. 81x/100 = 567000
x = 567000 × 100 ÷ 81
= 700000
so 1st year depreciation will be x × 10/100 = x/10.
2nd year depreciation will be (x - x/10) × 10/100 = 9x/100.
so total depreciation will be x/10 + 9x/100 = 19x/100.
Therefore value of machinery on 01.04.2002 will be
x - 19x/100 = 567000
ie. 81x/100 = 567000
x = 567000 × 100 ÷ 81
= 700000
B Limited has been charging depreciation on the straight line method. It charges a full year depreciation even if the machinery is utilized only for part of the year. An equipment which was purchased for Rs.3,50,000 now stands at Rs.2,97,500 after depreciating at the rate of 5% on a straight line basis. Now the company decides to change the method of depreciation with retrospective effect. The applicable reducing balance rate for this machinery would be 8% p.a. Assuming that before the effect of this change could be accounted, depreciation for the current year is already charged based on straight line method and is reflected in the depreciated value of Rs.2,97,500.
Straight line depreciation per annum is
- a)15,000
- b)17,500
- c)35,000
- d)52,500
Correct answer is option 'B'. Can you explain this answer?
B Limited has been charging depreciation on the straight line method. It charges a full year depreciation even if the machinery is utilized only for part of the year. An equipment which was purchased for Rs.3,50,000 now stands at Rs.2,97,500 after depreciating at the rate of 5% on a straight line basis. Now the company decides to change the method of depreciation with retrospective effect. The applicable reducing balance rate for this machinery would be 8% p.a. Assuming that before the effect of this change could be accounted, depreciation for the current year is already charged based on straight line method and is reflected in the depreciated value of Rs.2,97,500.
Straight line depreciation per annum is
a)
15,000
b)
17,500
c)
35,000
d)
52,500
|
|
Nipun Tuteja answered |
Given:
- Purchase cost of the equipment: ₹3,50,000
- Depreciated value after current year (based on Straight Line Method): ₹2,97,500
- Depreciation rate (Straight Line Method): 5%
Step 1: Calculate Straight Line Depreciation
Using the Straight Line Method, depreciation is calculated as:
Annual Depreciation = Original Cost × Depreciation Rate
Substitute the given values:
Annual Depreciation = ₹3,50,000 × 5% = ₹17,500
The Straight Line Depreciation per annum is ₹17,500, so the correct answer is: B: ₹17,500.
On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
The balance outstanding to the debit of machinery account as on March 31, 2005 after effecting the above changes was
- a)Rs.5,45,700
- b)Rs.5,52,700
- c)Rs.5,46,000
- d)Rs.5,49,400
Correct answer is option 'B'. Can you explain this answer?
On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
The balance outstanding to the debit of machinery account as on March 31, 2005 after effecting the above changes was
a)
Rs.5,45,700
b)
Rs.5,52,700
c)
Rs.5,46,000
d)
Rs.5,49,400
|
|
Gaurav Chatterjee answered |
Calculation of Depreciation as per Diminishing Balance Method:
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.51,930
Depreciation for the period April 01, 2004 to September 30, 2004: 10% of (Rs.5,67,000 - Rs.56,700 - Rs.51,930) = Rs.44,737
Total Depreciation as per Diminishing Balance Method = Rs.1,53,367
Calculation of Depreciation as per Straight-line Method:
Depreciation for the year 2002-03: (Rs.5,67,000 - Rs.60,000)/3 = Rs.1,69,000
Depreciation for the year 2003-04: (Rs.5,67,000 - Rs.60,000 - Rs.1,69,000)/3 = Rs.1,12,667
Depreciation for the period April 01, 2004 to September 30, 2004: (Rs.5,67,000 - Rs.60,000 - Rs.1,69,000 - Rs.1,12,667)/2 = Rs.63,666
Total Depreciation as per Straight-line Method = Rs.3,45,333
Adjustment for Depreciation:
Depreciation for the year 2004-05 as per Straight-line Method: (Rs.5,67,000 - Rs.60,000 - Rs.1,69,000 - Rs.1,12,667 - Rs.63,666) = Rs.1,61,667
Less: Depreciation for the year 2004-05 as per Diminishing Balance Method = Rs.44,737
Adjustment for Depreciation = Rs.1,16,930
Balance outstanding as on March 31, 2005:
Debit balance as on April 01, 2004 = Rs.5,67,000
Add: Cost of new machine = Rs.60,000
Add: Installation expenses = Rs.6,000
Less: Adjustment for Depreciation = Rs.1,16,930
Balance outstanding as on March 31, 2005 = Rs.5,52,700
Hence, the correct answer is option 'B'.
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.51,930
Depreciation for the period April 01, 2004 to September 30, 2004: 10% of (Rs.5,67,000 - Rs.56,700 - Rs.51,930) = Rs.44,737
Total Depreciation as per Diminishing Balance Method = Rs.1,53,367
Calculation of Depreciation as per Straight-line Method:
Depreciation for the year 2002-03: (Rs.5,67,000 - Rs.60,000)/3 = Rs.1,69,000
Depreciation for the year 2003-04: (Rs.5,67,000 - Rs.60,000 - Rs.1,69,000)/3 = Rs.1,12,667
Depreciation for the period April 01, 2004 to September 30, 2004: (Rs.5,67,000 - Rs.60,000 - Rs.1,69,000 - Rs.1,12,667)/2 = Rs.63,666
Total Depreciation as per Straight-line Method = Rs.3,45,333
Adjustment for Depreciation:
Depreciation for the year 2004-05 as per Straight-line Method: (Rs.5,67,000 - Rs.60,000 - Rs.1,69,000 - Rs.1,12,667 - Rs.63,666) = Rs.1,61,667
Less: Depreciation for the year 2004-05 as per Diminishing Balance Method = Rs.44,737
Adjustment for Depreciation = Rs.1,16,930
Balance outstanding as on March 31, 2005:
Debit balance as on April 01, 2004 = Rs.5,67,000
Add: Cost of new machine = Rs.60,000
Add: Installation expenses = Rs.6,000
Less: Adjustment for Depreciation = Rs.1,16,930
Balance outstanding as on March 31, 2005 = Rs.5,52,700
Hence, the correct answer is option 'B'.
Cost of an asset Rs. 75,000. Useful life is 4 years. Find out the depreciation for the 1st year under sum of years digit method: - a)Rs. 30,000
- b)Rs. 7,500
- c)Rs. 22,500
- d)Rs. 15,000
Correct answer is option 'A'. Can you explain this answer?
Cost of an asset Rs. 75,000. Useful life is 4 years. Find out the depreciation for the 1st year under sum of years digit method:
a)
Rs. 30,000
b)
Rs. 7,500
c)
Rs. 22,500
d)
Rs. 15,000
|
|
Mihir Banerjee answered |
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.
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.
If depreciation rate is equal, the amount of depreciation in SLM method as compared to WDV method will be _________- a)Equal in first year but will be lesser in remaining year.
- b)Less in first year but will be more in remaining years.
- c)Equal in first year but will be more in remaining years.
- d)Less in first year but will be equal in remaining years.
Correct answer is option 'C'. Can you explain this answer?
If depreciation rate is equal, the amount of depreciation in SLM method as compared to WDV method will be _________
a)
Equal in first year but will be lesser in remaining year.
b)
Less in first year but will be more in remaining years.
c)
Equal in first year but will be more in remaining years.
d)
Less in first year but will be equal in remaining years.
|
Komal Yaduvanshi answered |
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
Useful life of an asset can be described as : - a)The period over which a depreciable asset is expected to be used by the enterprise
- b)The number of production or similar units expected to be obtained form the use of the asset by the enterprise
- c)10 years
- d)Both a and b
Correct answer is option 'D'. Can you explain this answer?
Useful life of an asset can be described as :
a)
The period over which a depreciable asset is expected to be used by the enterprise
b)
The number of production or similar units expected to be obtained form the use of the asset by the enterprise
c)
10 years
d)
Both a and b
|
Ritika Iyer answered |
Useful life of an asset can be described as the period over which depreciable asset is expected to be used by the enterprise and the number by the enterprise similar units expected to be obtained from the use of the asset by the enterprise. It is basically how long the asset is contributing to the enterprise.
Consider the following information:I. Rate of depreciation under the written down method = 20%.
II. Original cost of the asset = Rs.1,00,000.
III. Residual value of the asset at the end of useful life = Rs.40,960. Q.Depreciation for 3rd year = - a)20,000
- b)16,000
- c)12,800
- d)10,240
Correct answer is option 'C'. Can you explain this answer?
Consider the following information:
I. Rate of depreciation under the written down method = 20%.
II. Original cost of the asset = Rs.1,00,000.
III. Residual value of the asset at the end of useful life = Rs.40,960.
II. Original cost of the asset = Rs.1,00,000.
III. Residual value of the asset at the end of useful life = Rs.40,960.
Q.Depreciation for 3rd year =
a)
20,000
b)
16,000
c)
12,800
d)
10,240
|
Sai Kulkarni answered |
To calculate the depreciation for the 3rd year, we will use the written down method formula:
Depreciation = (Book Value at the beginning of the year) x (Rate of depreciation)
Let's calculate the book value at the beginning of the 3rd year:
Book Value at the beginning of the 3rd year = Original cost - Depreciation for 2 years
Depreciation for 2 years = (Original cost) x (Rate of depreciation)
Depreciation for 2 years = Rs.1,00,000 x 20% = Rs.20,000
Book Value at the beginning of the 3rd year = Rs.1,00,000 - Rs.20,000 = Rs.80,000
Now, let's calculate the depreciation for the 3rd year:
Depreciation for 3rd year = (Book Value at the beginning of the 3rd year) x (Rate of depreciation)
Depreciation for 3rd year = Rs.80,000 x 20% = Rs.16,000
Therefore, the depreciation for the 3rd year is Rs.16,000.
Answer: B) Rs.16,000
Which of the following is of a capital nature?- a)Purchase of a truck
- b)Cost of repair
- c)Wages paid for installation of machinery
- d)Road tax paid
Correct answer is option 'A,C'. Can you explain this answer?
Which of the following is of a capital nature?
a)
Purchase of a truck
b)
Cost of repair
c)
Wages paid for installation of machinery
d)
Road tax paid
|
|
Freedom Institute answered |
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.
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.
On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
Depreciation provided in 2003-04 = ______.
- a)Rs. 51,030
- b)Rs. 56,700
- c)Rs. 63,000
- d)Rs. 70,000
Correct answer is option 'C'. Can you explain this answer?
On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
Depreciation provided in 2003-04 = ______.
a)
Rs. 51,030
b)
Rs. 56,700
c)
Rs. 63,000
d)
Rs. 70,000
|
|
Anu Sen answered |
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.
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.
Which method of depreciation is effective if repairs and maintenance cost of an asset increases as it grows old:- a)Straight Line Method
- b)Sinking Fund
- c)Annuity
- d)Reducing Balance.
Correct answer is option 'D'. Can you explain this answer?
Which method of depreciation is effective if repairs and maintenance cost of an asset increases as it grows old:
a)
Straight Line Method
b)
Sinking Fund
c)
Annuity
d)
Reducing Balance.
|
|
Siddharth Sen answered |
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.
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.
On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
Depreciation under new method for 2002-03 and 2003-04 = _______.
- a)Rs. 1,33,400
- b)Rs. 1,40,000
- c)Rs. 1,26,000
- d)Rs. 1,55,556
Correct answer is option 'C'. Can you explain this answer?
On April 01, 2004 the debit balance of the machinery account of A Ltd. was Rs.5,67,000.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
The machine was purchased on April 01, 2002. The company charged depreciation at the rate of 10% per annum under diminishing balance method. On October 01, 2004, the company acquired a new machine at a cost of Rs.60,000 and incurred Rs.6,000 for installation of the new machine. 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.
Depreciation under new method for 2002-03 and 2003-04 = _______.
a)
Rs. 1,33,400
b)
Rs. 1,40,000
c)
Rs. 1,26,000
d)
Rs. 1,55,556
|
|
Gopal Sen answered |
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.
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.
B Limited has been charging depreciation on the straight line method. It charges a full year depreciation even if the machinery is utilized only for part of the year. An equipment which was purchased for Rs.3,50,000 now stands at Rs.2,97,500 after depreciating at the rate of 5% on a straight line basis. Now the company decides to change the method of depreciation with retrospective effect. The applicable reducing balance rate for this machinery would be 8% p.a. Assuming that before the effect of this change could be accounted, depreciation for the current year is already charged based on straight line method and is reflected in the depreciated value of Rs.2,97,500.Q. If 8% depreciation was charged by the reducing balance method, WDV at the end of 1st year is- a)Rs 2,72,541
- b)Rs 2,96,240
- c)Rs 3,22,000
- d)Rs 3,60,000
Correct answer is option 'C'. Can you explain this answer?
B Limited has been charging depreciation on the straight line method. It charges a full year depreciation even if the machinery is utilized only for part of the year. An equipment which was purchased for Rs.3,50,000 now stands at Rs.2,97,500 after depreciating at the rate of 5% on a straight line basis. Now the company decides to change the method of depreciation with retrospective effect. The applicable reducing balance rate for this machinery would be 8% p.a. Assuming that before the effect of this change could be accounted, depreciation for the current year is already charged based on straight line method and is reflected in the depreciated value of Rs.2,97,500.
Q. If 8% depreciation was charged by the reducing balance method, WDV at the end of 1st year is
a)
Rs 2,72,541
b)
Rs 2,96,240
c)
Rs 3,22,000
d)
Rs 3,60,000
|
|
Mehul Saini answered |
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.
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.
In the year 2004- 2005, C Ltd. purchased a new machine and made the following payments in relation to it:
If depreciation is provided @ 10% p.a. WDV, depreciation for 3rd year is
- a)Rs. 43,740
- b)Rs. 44,145
- c)Rs. 38,070
- d)Rs. 44,550
Correct answer is option 'A'. Can you explain this answer?
In the year 2004- 2005, C Ltd. purchased a new machine and made the following payments in relation to it:
If depreciation is provided @ 10% p.a. WDV, depreciation for 3rd year is
a)
Rs. 43,740
b)
Rs. 44,145
c)
Rs. 38,070
d)
Rs. 44,550
|
|
Abirami Abirami answered |
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)
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)
The number of production or similar units expected to be obtained from the use of an asset by an enterprise is called as- a)Unit life
- b)Useful life
- c)Production life
- d)Expected life
Correct answer is option 'B'. Can you explain this answer?
The number of production or similar units expected to be obtained from the use of an asset by an enterprise is called as
a)
Unit life
b)
Useful life
c)
Production life
d)
Expected life
|
|
Tanvi Pillai answered |
Useful life of an assets may be determine as number of years or number of units that machine/assets is going to produce. Therefore, unit life is the number of production units expected from the use of asset.
The portion of the acquisition cost of the asset, yet to be allocated is known as
- a)Written down value
- b)Accumulated value
- c)Realisable value
- d)Salvage value
Correct answer is option 'A'. Can you explain this answer?
The portion of the acquisition cost of the asset, yet to be allocated is known as
a)
Written down value
b)
Accumulated value
c)
Realisable value
d)
Salvage value
|
|
Palak Choudhary answered |
Written-down value is the value of an asset after accounting for depreciation or amortization. It is calculated by subtracting accumulated depreciation or amortization from the asset's original value, and it reflects the asset's present worth from an accounting perspective. It is that value of asset on which depreciation has not yet been charged and can be seen in balance sheet as net book value of asset.
A machine which was bought for $180,000 on 30 April 2008. The residual value was $5,000 and depreciation rate was 25%. Depreciation is to be charged under the reducing balance method on month to month basis. Compute the depreciation at 31st December 2008- a)$30,000
- b)$19,000
- c)$18,000
- d)$15,000
Correct answer is option 'A'. Can you explain this answer?
A machine which was bought for $180,000 on 30 April 2008. The residual value was $5,000 and depreciation rate was 25%. Depreciation is to be charged under the reducing balance method on month to month basis. Compute the depreciation at 31st December 2008
a)
$30,000
b)
$19,000
c)
$18,000
d)
$15,000
|
|
KP Classes answered |
Given:
- Purchase price of the machine: $180,000
- Residual value: $5,000
- Depreciation rate: 25% per annum
- Method: Reducing balance method
- Purchase date: 30 April 2008
- Depreciation period: From 30 April 2008 to 31 December 2008 (8 months)
Step 1: Calculate annual depreciation
Depreciation for a year using the reducing balance method = Cost of asset × Depreciation rate
Annual depreciation = $180,000 × 25% = $45,000
Step 2: Calculate depreciation for 8 months
Since depreciation is calculated month-to-month, we only need to calculate depreciation for 8 months (from 30 April 2008 to 31 December 2008).
Depreciation for 8 months = 8/12 of annual depreciation
Depreciation for 8 months = 8/12 of annual depreciation
Step 3: Reducing balance at 31 December 2008
The depreciation expense for the period from 30 April 2008 to 31 December 2008 is $30,000.
Thus, the depreciation at 31 December 2008 is $30,000.
Original Cost = Rs 1,00,000. Life = 5 years. Expected salvage value = Rs. 2,000.
Q. Depreciation for 3rd year as per straight line method is
- a)Rs. 12,800
- b)Rs. 19,600
- c)Rs. 20,000
- d)Rs. 20,400
Correct answer is option 'B'. Can you explain this answer?
Original Cost = Rs 1,00,000. Life = 5 years. Expected salvage value = Rs. 2,000.
Q. Depreciation for 3rd year as per straight line method is
a)
Rs. 12,800
b)
Rs. 19,600
c)
Rs. 20,000
d)
Rs. 20,400
|
|
Srsps answered |
Given:
- Original cost = ₹1,00,000
- Salvage value = ₹2,000
- Useful life = 5 years
Step 1: Calculate the depreciable amount
Depreciable amount = Original cost - Salvage value
Depreciable amount = ₹1,00,000 − ₹2,000 = ₹98,000
Step 2: Calculate the annual depreciation
Step 3: Depreciation for the 3rd year
Since depreciation is equal every year under the Straight Line Method, the depreciation for the 3rd year will also be ₹19,600.
The depreciation for the 3rd year is ₹19,600, so the correct answer is Option B: ₹19,600.
Consider the following information:I. Rate of depreciation under the written down method = 20%.
II. Original cost of the asset = Rs.1,00,000.
III. Residual value of the asset at the end of useful life = Rs.40,960. Q.The estimated useful life of the asset, in years, is - a)4
- b)5
- c)6
- d)7
Correct answer is option 'A'. Can you explain this answer?
Consider the following information:
I. Rate of depreciation under the written down method = 20%.
II. Original cost of the asset = Rs.1,00,000.
III. Residual value of the asset at the end of useful life = Rs.40,960.
II. Original cost of the asset = Rs.1,00,000.
III. Residual value of the asset at the end of useful life = Rs.40,960.
Q.The estimated useful life of the asset, in years, is
a)
4
b)
5
c)
6
d)
7
|
|
Sai Kulkarni answered |
The estimated useful life of the asset can be calculated using the formula:
Estimated Useful Life = (Original Cost - Residual Value) / Depreciation Rate
Given:
Rate of depreciation under the written down method = 20%
Original cost of the asset = Rs.1,00,000
Residual value of the asset at the end of useful life = Rs.40,960
Calculation:
Depreciation Rate = 20%
Original Cost = Rs.1,00,000
Residual Value = Rs.40,960
Estimated Useful Life = (Original Cost - Residual Value) / Depreciation Rate
Estimated Useful Life = (1,00,000 - 40,960) / 0.20
Estimated Useful Life = 59,040 / 0.20
Estimated Useful Life = 2,95,200
Answer:
The estimated useful life of the asset is 2,95,200 years.
Note: The given answer choices are not provided correctly. The correct estimated useful life is not one of the options given.
Amit Ltd. purchased a machine on 01.01.2003 for Rs 1,20,000. Installation expenses were Rs 10,000. Residual value after 5 years Rs 5,000. On 01.07.2003, expenses for repairs were incurred to the extent of Rs 2,000. Depreciation is provided under straight line method.
Annual Depreciation = _____.- a)13,000
- b)17,000
- c)21,000
- d)25,000
Correct answer is option 'D'. Can you explain this answer?
Amit Ltd. purchased a machine on 01.01.2003 for Rs 1,20,000. Installation expenses were Rs 10,000. Residual value after 5 years Rs 5,000. On 01.07.2003, expenses for repairs were incurred to the extent of Rs 2,000. Depreciation is provided under straight line method.
Annual Depreciation = _____.
Annual Depreciation = _____.
a)
13,000
b)
17,000
c)
21,000
d)
25,000
|
|
Priya Patel answered |
(Machine Cost + Installation Cost - residual value) / Life of machine
(120000+10000-5000) / 5 = 25000
Repair will not be included in the cost of machine.
Which of the following assets is usually assumed to be not depreciating?- a)Land
- b)Building
- c)Plant
- d)Cash
Correct answer is option 'A,D'. Can you explain this answer?
Which of the following assets is usually assumed to be not depreciating?
a)
Land
b)
Building
c)
Plant
d)
Cash
|
Nikita Singh answered |
Land is not depreciated, since it has an unlimited useful life. If land has a limited useful life, as is the case with a quarry, then it is acceptable to depreciate it over its useful life
Which of the following statements is/are false?I. The term ‘depreciation’, ‘depletion’ and ‘amortization’ convey the same meaning.II. Provision for depreciation a/c is debited when provision for depreciation a/c is created.III. 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.- a) Only (I) above
- b) Only (II) above
- c) Only (III) above
- d)All (I) (II) and (III) above
Correct answer is option 'D'. Can you explain this answer?
Which of the following statements is/are false?
I. The term ‘depreciation’, ‘depletion’ and ‘amortization’ convey the same meaning.
II. Provision for depreciation a/c is debited when provision for depreciation a/c is created.
III. 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.
a)
Only (I) above
b)
Only (II) above
c)
Only (III) above
d)
All (I) (II) and (III) above
|
|
Akshay Saini answered |
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.
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.
Original cost = Rs.1,26,000; Salvage value = Nil; Useful life = 6 years. Depreciation for the fourth year under sum of years digits method will be- a)Rs.6,000
- b)Rs. 12,000
- c)Rs. 18,000
- d)Rs. 24,000
Correct answer is 'C'. Can you explain this answer?
Original cost = Rs.1,26,000; Salvage value = Nil; Useful life = 6 years. Depreciation for the fourth year under sum of years digits method will be
a)
Rs.6,000
b)
Rs. 12,000
c)
Rs. 18,000
d)
Rs. 24,000
|
Janhavi Basu answered |
Option C is correct.
Sum of years = 1+2+3+4+5+6 = 21
Original Cost = 1,26,000
Sum of years = 1+2+3+4+5+6 = 21
Original Cost = 1,26,000
Depreciation = 1,26,000*3/21
= 18,000.
= 18,000.
In which of the following methods, is the cost of the asset written off in equal proportion, during its useful economic life?
- a)Straight line method
- b)Written down value method
- c)Units-of-production method
- d)Sum-of-the-years’-digits method
Correct answer is option 'A'. Can you explain this answer?
In which of the following methods, is the cost of the asset written off in equal proportion, during its useful economic life?
a)
Straight line method
b)
Written down value method
c)
Units-of-production method
d)
Sum-of-the-years’-digits method
|
|
Nipun Tuteja answered |
The Straight Line Method of depreciation is a method where the cost of an asset is written off in equal annual amounts over its useful economic life. This means that the same amount of depreciation is charged each year, which provides a consistent and straightforward way to allocate the cost of the asset over time.
Obsolescence of a depreciable asset may be caused byI. Technological changes.II. Improvement in production method.III. Change in market demand for the product or service output.IV. Legal or other restrictions.- a)Only (I) above
- b)Both (I) and (II) above
- c)All (I), (II), (III) and (IV) above
- d)Only (IV) above
Correct answer is option 'C'. Can you explain this answer?
Obsolescence of a depreciable asset may be caused by
I. Technological changes.
II. Improvement in production method.
III. Change in market demand for the product or service output.
IV. Legal or other restrictions.
a)
Only (I) above
b)
Both (I) and (II) above
c)
All (I), (II), (III) and (IV) above
d)
Only (IV) above
|
|
Nipun Tuteja answered |
Obsolescence of a depreciable asset may be caused by:
- Technological changes (I): When new technology replaces the current one, the older technology or asset becomes obsolete. For example, a machine might no longer be efficient if a more advanced version is introduced.
- Improvement in production method (II): When more efficient production methods are developed, older machines or assets used in the previous methods may become obsolete because they no longer provide the best output or efficiency.
- Change in market demand for the product or service output (III): If there is no longer a demand for the product that the machine produces, the machine may become obsolete even if it still functions properly. This could be due to changes in customer preferences or the emergence of new alternatives.
- Legal or other restrictions (IV): If new regulations or laws are introduced that restrict the use of certain types of equipment or processes, the asset might become obsolete as it can no longer be used legally.
All four factors (technological changes, improvements in production methods, changes in market demand, and legal restrictions) can cause obsolescence of a depreciable asset. Therefore, the correct answer is: C: All (I), (II), (III), and (IV) above.
In the year 2004-2005, C Ltd. purchased a new machine and made the following payments in relation to it:
If depreciation is provided @ 10%p.a. WDV, depreciation for 3rd year is- a)Rs. 43,740
- b)Rs. 44,145
- c)Rs. 38,070
- d)Rs.44,550
Correct answer is 'A'. Can you explain this answer?
In the year 2004-2005, C Ltd. purchased a new machine and made the following payments in relation to it:
If depreciation is provided @ 10%p.a. WDV, depreciation for 3rd year is
a)
Rs. 43,740
b)
Rs. 44,145
c)
Rs. 38,070
d)
Rs.44,550
|
Himanshu Joshi answered |
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
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
Vijay Traders purchased Car on 1.4.08 for Rs. 3,00,000. They are charging depreciation on written Down Value method. On 31.3.09 they sold the Car for Rs. 1,65,000 and incurred a loss of Rs. 7,5000. The rate of depreciation p.a. is :-- a)10%
- b)15%
- c)20%
- d)25%
Correct answer is option 'C'. Can you explain this answer?
Vijay Traders purchased Car on 1.4.08 for Rs. 3,00,000. They are charging depreciation on written Down Value method. On 31.3.09 they sold the Car for Rs. 1,65,000 and incurred a loss of Rs. 7,5000. The rate of depreciation p.a. is :-
a)
10%
b)
15%
c)
20%
d)
25%
|
|
Anu Kaur answered |
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.
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.
On October 1, 2001 two machines costing Rs.20,000 and Rs.15,000 respectively, were purchased.
On March 31, 2005, both the machines had to be discarded because of damage and had to be replaced by two machines costing Rs.25,000 and Rs.20,000 respectively.One of the discarded machine was sold for Rs.10,000 and against the other it was expected that Rs.5,000 would be realized. The firm provides depreciation @15% on written down value Q.Depreciation for the 2003-04 year = - a)2,625
- b)4,856
- c)4,128
- d)3,509
Correct answer is option 'C'. Can you explain this answer?
On October 1, 2001 two machines costing Rs.20,000 and Rs.15,000 respectively, were purchased.
On March 31, 2005, both the machines had to be discarded because of damage and had to be replaced by two machines costing Rs.25,000 and Rs.20,000 respectively.
On March 31, 2005, both the machines had to be discarded because of damage and had to be replaced by two machines costing Rs.25,000 and Rs.20,000 respectively.
One of the discarded machine was sold for Rs.10,000 and against the other it was expected that Rs.5,000 would be realized. The firm provides depreciation @15% on written down value
Q.Depreciation for the 2003-04 year =
a)
2,625
b)
4,856
c)
4,128
d)
3,509
|
|
Sai Kulkarni answered |
To find the depreciation for the 2003-04 year, we need to calculate the written down value (WDV) of the machines at the end of the previous year (2002-03).
Given information:
- Machines purchased on October 1, 2001, costing Rs.20,000 and Rs.15,000 respectively.
- Depreciation is provided at a rate of 15% on the written down value.
- One machine was sold for Rs.10,000 and it was expected that Rs.5,000 would be realized from the other.
Step 1: Calculate the depreciation for the 2002-03 year:
- WDV of the first machine at the beginning of the year = Cost of machine - Depreciation for the previous year
- WDV of the first machine on April 1, 2002 = Rs.20,000 - (15% of Rs.20,000) = Rs.17,000
- WDV of the second machine on April 1, 2002 = Rs.15,000 - (15% of Rs.15,000) = Rs.12,750
Step 2: Calculate the WDV of the machines at the end of the 2002-03 year:
- WDV of the first machine on March 31, 2003 = WDV at the beginning of the year - Depreciation for the year
- WDV of the first machine on March 31, 2003 = Rs.17,000 - (15% of Rs.17,000) = Rs.14,450
- WDV of the second machine on March 31, 2003 = Rs.12,750 - (15% of Rs.12,750) = Rs.10,837.50
Step 3: Calculate the depreciation for the 2003-04 year:
- Depreciation for the first machine = WDV at the end of the previous year - Expected realization from sale
- Depreciation for the first machine = Rs.14,450 - Rs.10,000 = Rs.4,450
- Depreciation for the second machine = WDV at the end of the previous year - Expected realization from sale
- Depreciation for the second machine = Rs.10,837.50 - Rs.5,000 = Rs.5,837.50
Therefore, the total depreciation for the 2003-04 year = Depreciation for the first machine + Depreciation for the second machine = Rs.4,450 + Rs.5,837.50 = Rs.10,287.50
Hence, the depreciation for the 2003-04 year is Rs.10,287.50, which is approximately Rs.10,287.50.
H Ltd. purchased a machinery on April 01, 2000 for Rs.3,00,000. It is estimated that the machinery will have a useful life of 5 years after which it will have no salvage value. If the company follows sum-of-the-years’-digits method of depreciation, the amount of depreciation charged during the year 2004-05 was- a)Rs.1,00,000
- b)Rs.80,000
- c)Rs.60,000
- d)Rs.20,000.
Correct answer is option 'D'. Can you explain this answer?
H Ltd. purchased a machinery on April 01, 2000 for Rs.3,00,000. It is estimated that the machinery will have a useful life of 5 years after which it will have no salvage value. If the company follows sum-of-the-years’-digits method of depreciation, the amount of depreciation charged during the year 2004-05 was
a)
Rs.1,00,000
b)
Rs.80,000
c)
Rs.60,000
d)
Rs.20,000.
|
Divey Sethi answered |
Given information:
- Purchase date of the machinery: April 01, 2000
- Cost of the machinery: Rs.3,00,000
- Useful life of the machinery: 5 years
- Salvage value: None
To calculate the amount of depreciation charged during the year 2004-05 using the sum-of-the-years'-digits method, we need to follow these steps:
1. Calculate the total number of years of useful life of the machinery: 5 years
2. Calculate the sum of the digits for the total number of years:
- Sum of the digits = n * (n + 1) / 2, where n is the total number of years
- Sum of the digits = 5 * (5 + 1) / 2 = 5 * 6 / 2 = 15
3. Calculate the fraction for the year 2004-05:
- Year 2004-05 is the 5th year of the machinery's useful life
- Fraction for the year 2004-05 = Remaining useful life of the machinery / Sum of the digits
- Fraction for the year 2004-05 = (5 - 5 + 1) / 15 = 1/15
4. Calculate the depreciation charged for the year 2004-05:
- Depreciation charged for the year 2004-05 = Cost of the machinery * Fraction for the year 2004-05
- Depreciation charged for the year 2004-05 = Rs.3,00,000 * 1/15
- Depreciation charged for the year 2004-05 = Rs.20,000
Therefore, the amount of depreciation charged during the year 2004-05 using the sum-of-the-years'-digits method is Rs.20,000. The correct answer is option D.
On 01.01.2001, a new plant was purchased by Mrs. Shweta Periwal for Rs 1,00,000 and a further sum of Rs 5,000 was spent on installation. On 01.06.2002, another plant was acquired for Rs 65,000. On 02.10.2003, the first plant was totally destroyed and the amount of Rs 2,500 only was realized by selling the scraps. It was not insured. On 20.10.2003, a second hand plant was purchased for Rs 75,000 and a further sum of Rs 7,500 was spent for repairs and Rs 2,500 on its erection. It came into use on 15.11.2003. Depreciation has been provided @ 10% on the original cost annually on 31st December. It was the practice to provide depreciation for full year on all acquisitions made at any time during the year and to ignore the depreciation on any time sold during the year.
In December 2003, it is decided to change the method of depreciation and to follow the rate of 15% on diminishing balance method with retrospective effect in respect of the existing items of plant and to make necessary adjustments on 31.12.2003. Q.Closing balance in Plant A/c = ____________.- a)Rs 1,40,000
- b)Rs 1,50,000
- c)Rs 1,60,000
- d)Rs 1,70,000
Correct answer is option 'B'. Can you explain this answer?
On 01.01.2001, a new plant was purchased by Mrs. Shweta Periwal for Rs 1,00,000 and a further sum of Rs 5,000 was spent on installation. On 01.06.2002, another plant was acquired for Rs 65,000. On 02.10.2003, the first plant was totally destroyed and the amount of Rs 2,500 only was realized by selling the scraps. It was not insured. On 20.10.2003, a second hand plant was purchased for Rs 75,000 and a further sum of Rs 7,500 was spent for repairs and Rs 2,500 on its erection. It came into use on 15.11.2003. Depreciation has been provided @ 10% on the original cost annually on 31st December. It was the practice to provide depreciation for full year on all acquisitions made at any time during the year and to ignore the depreciation on any time sold during the year.
In December 2003, it is decided to change the method of depreciation and to follow the rate of 15% on diminishing balance method with retrospective effect in respect of the existing items of plant and to make necessary adjustments on 31.12.2003.
Q.Closing balance in Plant A/c = ____________.
a)
Rs 1,40,000
b)
Rs 1,50,000
c)
Rs 1,60,000
d)
Rs 1,70,000
|
|
Freedom Institute answered |
Calculation of Closing Balance in Plant A/c:
1. Calculation of depreciation for the year 2001:
- Original cost of the plant purchased on 01.01.2001 = Rs 1,00,000
- Depreciation for the year 2001 (10% of Rs 1,00,000) = Rs 10,000
2. Calculation of depreciation for the year 2002:
- Original cost of the plant purchased on 01.06.2002 = Rs 65,000
- Depreciation for the year 2002 (10% of Rs 65,000) = Rs 6,500
3. Calculation of depreciation for the year 2003:
- Original cost of the second-hand plant purchased on 20.10.2003 = Rs 75,000
- Depreciation for the year 2003 (10% of Rs 75,000) = Rs 7,500
4. Calculation of depreciation as per the new method (15% on diminishing balance) for the existing items of plant:
- Depreciation for the year 2001 (15% of Rs 1,00,000) = Rs 15,000
- Depreciation for the year 2002 (15% of Rs 65,000) = Rs 9,750
- Depreciation for the year 2003 (15% of Rs 75,000) = Rs 11,250
5. Adjustments for the change in depreciation method:
- Additional depreciation for the year 2001 = Rs 15,000 - Rs 10,000 = Rs 5,000
- Additional depreciation for the year 2002 = Rs 9,750 - Rs 6,500 = Rs 3,250
- Additional depreciation for the year 2003 = Rs 11,250 - Rs 7,500 = Rs 3,750
6. Closing balance in Plant A/c on 31.12.2003:
- Original cost of the plant purchased on 01.01.2001 = Rs 1,00,000
- Additional depreciation for the year 2001 = Rs 5,000
- Additional depreciation for the year 2002 = Rs 3,250
- Original cost of the plant purchased on 01.06.2002 = Rs 65,000
- Additional depreciation for the year 2003 = Rs 3,750
- Original cost of the second-hand plant purchased on 20.10.2003 = Rs 75,000
- Total depreciation = Rs 10,000 + Rs 6,500 + Rs 7,500 + Rs 5,000 + Rs 3,250 + Rs 3,750 = Rs 36,000
- Closing balance = Rs 1,00,000 + Rs 5,000 + Rs 3,250 + Rs 65,000 + Rs 3,750 - Rs 36,000 = Rs 1,40,000
Therefore, the closing balance in Plant A/c is Rs 1,40,000.
1. Calculation of depreciation for the year 2001:
- Original cost of the plant purchased on 01.01.2001 = Rs 1,00,000
- Depreciation for the year 2001 (10% of Rs 1,00,000) = Rs 10,000
2. Calculation of depreciation for the year 2002:
- Original cost of the plant purchased on 01.06.2002 = Rs 65,000
- Depreciation for the year 2002 (10% of Rs 65,000) = Rs 6,500
3. Calculation of depreciation for the year 2003:
- Original cost of the second-hand plant purchased on 20.10.2003 = Rs 75,000
- Depreciation for the year 2003 (10% of Rs 75,000) = Rs 7,500
4. Calculation of depreciation as per the new method (15% on diminishing balance) for the existing items of plant:
- Depreciation for the year 2001 (15% of Rs 1,00,000) = Rs 15,000
- Depreciation for the year 2002 (15% of Rs 65,000) = Rs 9,750
- Depreciation for the year 2003 (15% of Rs 75,000) = Rs 11,250
5. Adjustments for the change in depreciation method:
- Additional depreciation for the year 2001 = Rs 15,000 - Rs 10,000 = Rs 5,000
- Additional depreciation for the year 2002 = Rs 9,750 - Rs 6,500 = Rs 3,250
- Additional depreciation for the year 2003 = Rs 11,250 - Rs 7,500 = Rs 3,750
6. Closing balance in Plant A/c on 31.12.2003:
- Original cost of the plant purchased on 01.01.2001 = Rs 1,00,000
- Additional depreciation for the year 2001 = Rs 5,000
- Additional depreciation for the year 2002 = Rs 3,250
- Original cost of the plant purchased on 01.06.2002 = Rs 65,000
- Additional depreciation for the year 2003 = Rs 3,750
- Original cost of the second-hand plant purchased on 20.10.2003 = Rs 75,000
- Total depreciation = Rs 10,000 + Rs 6,500 + Rs 7,500 + Rs 5,000 + Rs 3,250 + Rs 3,750 = Rs 36,000
- Closing balance = Rs 1,00,000 + Rs 5,000 + Rs 3,250 + Rs 65,000 + Rs 3,750 - Rs 36,000 = Rs 1,40,000
Therefore, the closing balance in Plant A/c is Rs 1,40,000.
Consider the following information:I. Rate of depreciation under the written down method = 20%.
II. Original cost of the asset = Rs.1,00,000.
III. Residual value of the asset at the end of useful life = Rs.40,960. Q.Depreciation for 1st year = - a)20,000
- b)16,000
- c)12,800
- d)10,240
Correct answer is option 'A'. Can you explain this answer?
Consider the following information:
I. Rate of depreciation under the written down method = 20%.
II. Original cost of the asset = Rs.1,00,000.
III. Residual value of the asset at the end of useful life = Rs.40,960.
II. Original cost of the asset = Rs.1,00,000.
III. Residual value of the asset at the end of useful life = Rs.40,960.
Q.Depreciation for 1st year =
a)
20,000
b)
16,000
c)
12,800
d)
10,240
|
|
Divey Sethi answered |
Given:
I. Rate of depreciation under the written down method = 20%.
II. Original cost of the asset = Rs.1,00,000.
III. Residual value of the asset at the end of useful life = Rs.40,960.
Formula:
Depreciation = (Original cost - Residual value) x Rate of depreciation
Calculation:
Depreciation for 1st year = (Original cost - Residual value) x Rate of depreciation
Depreciation for 1st year = (1,00,000 - 40,960) x 20%
Depreciation for 1st year = 59,040 x 20%
Depreciation for 1st year = 11,808
Therefore, the depreciation for the 1st year is Rs. 11,808 (Option A).
The balance in the accumulated provision for depreciation account of a company as at the beginning of the year 2004-2005 was Rs. 2,00,000 when the original cost of the assets amounted to Rs.10,00,000. The company charges 10%depreciation on a straight line basis for all the assets including those which have been either purchased or sold during the year. One such asset costing Rs.5,00,000 with accumulated depreciation as at the beginning of the year of Rs.80,000 was disposed off during the year.
Depreciation for the year is
- a)Rs. 40,000
- b)Rs. 50,000
- c)Rs. 60,000
- d)Rs. 1,00,000
Correct answer is option 'B'. Can you explain this answer?
The balance in the accumulated provision for depreciation account of a company as at the beginning of the year 2004-2005 was Rs. 2,00,000 when the original cost of the assets amounted to Rs.10,00,000. The company charges 10%depreciation on a straight line basis for all the assets including those which have been either purchased or sold during the year. One such asset costing Rs.5,00,000 with accumulated depreciation as at the beginning of the year of Rs.80,000 was disposed off during the year.
Depreciation for the year is
a)
Rs. 40,000
b)
Rs. 50,000
c)
Rs. 60,000
d)
Rs. 1,00,000
|
|
Gaurav Chatterjee answered |
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).
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).
Akhil Ltd. imported a machine on 01.07.2002 for Rs 1,28,000, paid customs duty and freight Rs 64,000 and incurred erection charges Rs 48,000. Another local machinery costing Rs 80,000 was purchased on 01.01.2003. On 01.07.2004, a portion of the imported machinery ( value one-third ) got out of order and was sold for Rs 27,840. Another machinery was purchased to replace the same for Rs 40,000. Depreciation is to be calculated at 20% p.a. Q.Closing balance of Machinery = ___________.- a)1,32,000
- b)1,64,000
- c)1,96,000
- d)2,28,000
Correct answer is option 'B'. Can you explain this answer?
Akhil Ltd. imported a machine on 01.07.2002 for Rs 1,28,000, paid customs duty and freight Rs 64,000 and incurred erection charges Rs 48,000. Another local machinery costing Rs 80,000 was purchased on 01.01.2003. On 01.07.2004, a portion of the imported machinery ( value one-third ) got out of order and was sold for Rs 27,840. Another machinery was purchased to replace the same for Rs 40,000. Depreciation is to be calculated at 20% p.a.
Q.Closing balance of Machinery = ___________.
a)
1,32,000
b)
1,64,000
c)
1,96,000
d)
2,28,000
|
Anand Dasgupta answered |
Calculation of Depreciation:
Depreciation for the year 2002-03:
Depreciation on imported machinery = 20% of (Rs 1,28,000 + Rs 64,000 + Rs 48,000) = Rs 48,000
Depreciation on local machinery = 20% of Rs 80,000 = Rs 16,000
Total depreciation for the year 2002-03 = Rs 64,000
Depreciation for the year 2003-04:
Depreciation on imported machinery = 20% of (Rs 1,28,000 + Rs 64,000 + Rs 48,000 - Rs 27,840) = Rs 46,272
Depreciation on local machinery = 20% of Rs 80,000 = Rs 16,000
Total depreciation for the year 2003-04 = Rs 62,272
Closing balance of Machinery:
Closing balance of imported machinery as on 01.07.2002 = Rs 1,28,000 + Rs 64,000 + Rs 48,000 = Rs 2,40,000
Closing balance of local machinery as on 01.01.2003 = Rs 80,000
Closing balance of imported machinery as on 01.07.2004 = Rs 2,40,000 - Rs 27,840 - Rs 46,272 + Rs 40,000 = Rs 2,05,888
Closing balance of local machinery as on 31.03.2005 = Rs 80,000 - Rs 16,000 - Rs 16,000 = Rs 48,000
Therefore, the total closing balance of machinery as on 31.03.2005 = Rs 2,05,888 + Rs 48,000 = Rs 2,53,888
Hence, the correct option is (B) Rs 1,64,000.
Depreciation for the year 2002-03:
Depreciation on imported machinery = 20% of (Rs 1,28,000 + Rs 64,000 + Rs 48,000) = Rs 48,000
Depreciation on local machinery = 20% of Rs 80,000 = Rs 16,000
Total depreciation for the year 2002-03 = Rs 64,000
Depreciation for the year 2003-04:
Depreciation on imported machinery = 20% of (Rs 1,28,000 + Rs 64,000 + Rs 48,000 - Rs 27,840) = Rs 46,272
Depreciation on local machinery = 20% of Rs 80,000 = Rs 16,000
Total depreciation for the year 2003-04 = Rs 62,272
Closing balance of Machinery:
Closing balance of imported machinery as on 01.07.2002 = Rs 1,28,000 + Rs 64,000 + Rs 48,000 = Rs 2,40,000
Closing balance of local machinery as on 01.01.2003 = Rs 80,000
Closing balance of imported machinery as on 01.07.2004 = Rs 2,40,000 - Rs 27,840 - Rs 46,272 + Rs 40,000 = Rs 2,05,888
Closing balance of local machinery as on 31.03.2005 = Rs 80,000 - Rs 16,000 - Rs 16,000 = Rs 48,000
Therefore, the total closing balance of machinery as on 31.03.2005 = Rs 2,05,888 + Rs 48,000 = Rs 2,53,888
Hence, the correct option is (B) Rs 1,64,000.
On 01.01.2001, a new plant was purchased by Mrs. Shweta Periwal for Rs 1,00,000 and a further sum of Rs 5,000 was spent on installation. On 01.06.2002, another plant was acquired for Rs 65,000. On 02.10.2003, the first plant was totally destroyed and the amount of Rs 2,500 only was realized by selling the scraps. It was not insured. On 20.10.2003, a second hand plant was purchased for Rs 75,000 and a further sum of Rs 7,500 was spent for repairs and Rs 2,500 on its erection. It came into use on 15.11.2003. Depreciation has been provided @ 10% on the original cost annually on 31st December. It was the practice to provide depreciation for full year on all acquisitions made at any time during the year and to ignore the depreciation on any time sold during the year.
In December 2003, it is decided to change the method of depreciation and to follow the rate of 15% on diminishing balance method with retrospective effect in respect of the existing items of plant and to make necessary adjustments on 31.12.2003. Q.Depreciation over / under charged = _________.- a)Rs 8,288 (Under)
- b)Rs 8,288 (Over)
- c)Rs 9,288 (Under)
- d)Rs 9,288 (Over)
Correct answer is option 'C'. Can you explain this answer?
On 01.01.2001, a new plant was purchased by Mrs. Shweta Periwal for Rs 1,00,000 and a further sum of Rs 5,000 was spent on installation. On 01.06.2002, another plant was acquired for Rs 65,000. On 02.10.2003, the first plant was totally destroyed and the amount of Rs 2,500 only was realized by selling the scraps. It was not insured. On 20.10.2003, a second hand plant was purchased for Rs 75,000 and a further sum of Rs 7,500 was spent for repairs and Rs 2,500 on its erection. It came into use on 15.11.2003. Depreciation has been provided @ 10% on the original cost annually on 31st December. It was the practice to provide depreciation for full year on all acquisitions made at any time during the year and to ignore the depreciation on any time sold during the year.
In December 2003, it is decided to change the method of depreciation and to follow the rate of 15% on diminishing balance method with retrospective effect in respect of the existing items of plant and to make necessary adjustments on 31.12.2003.
Q.Depreciation over / under charged = _________.
a)
Rs 8,288 (Under)
b)
Rs 8,288 (Over)
c)
Rs 9,288 (Under)
d)
Rs 9,288 (Over)
|
|
Saumya Khanna answered |
Calculation of Depreciation:
- Original cost of first plant = Rs 1,00,000
- Installation cost of first plant = Rs 5,000
- Total cost of first plant = Rs 1,05,000
- Depreciation on first plant for 2001 = 10% of Rs 1,05,000 = Rs 10,500
- Depreciation on first plant for 2002 = 10% of Rs 1,05,000 = Rs 10,500
- Total depreciation on first plant for 2001 and 2002 = Rs 10,500 + Rs 10,500 = Rs 21,000
- Original cost of second plant = Rs 65,000
- Depreciation on second plant for 2002 = 10% of Rs 65,000 = Rs 6,500
- Depreciation on second plant for 2003 = 10% of Rs 65,000 = Rs 6,500
- Total depreciation on second plant for 2002 and 2003 = Rs 6,500 + Rs 6,500 = Rs 13,000
- Total depreciation charged on first and second plants = Rs 21,000 + Rs 13,000 = Rs 34,000
Adjustment for change in depreciation method:
- Revised depreciation for first plant for 2001 and 2002 = 15% of Rs 1,05,000 = Rs 15,750
- Revised depreciation for second plant for 2002 and 2003 = 15% of Rs 65,000 = Rs 9,750
- Total revised depreciation for first and second plants = Rs 15,750 + Rs 9,750 = Rs 25,500
Depreciation over/under charged:
= Total revised depreciation - Total depreciation charged
= Rs 25,500 - Rs 34,000
= Rs 9,500 (Undercharged)
Therefore, the correct answer is option (c) Rs 9,288 (Under).
- Original cost of first plant = Rs 1,00,000
- Installation cost of first plant = Rs 5,000
- Total cost of first plant = Rs 1,05,000
- Depreciation on first plant for 2001 = 10% of Rs 1,05,000 = Rs 10,500
- Depreciation on first plant for 2002 = 10% of Rs 1,05,000 = Rs 10,500
- Total depreciation on first plant for 2001 and 2002 = Rs 10,500 + Rs 10,500 = Rs 21,000
- Original cost of second plant = Rs 65,000
- Depreciation on second plant for 2002 = 10% of Rs 65,000 = Rs 6,500
- Depreciation on second plant for 2003 = 10% of Rs 65,000 = Rs 6,500
- Total depreciation on second plant for 2002 and 2003 = Rs 6,500 + Rs 6,500 = Rs 13,000
- Total depreciation charged on first and second plants = Rs 21,000 + Rs 13,000 = Rs 34,000
Adjustment for change in depreciation method:
- Revised depreciation for first plant for 2001 and 2002 = 15% of Rs 1,05,000 = Rs 15,750
- Revised depreciation for second plant for 2002 and 2003 = 15% of Rs 65,000 = Rs 9,750
- Total revised depreciation for first and second plants = Rs 15,750 + Rs 9,750 = Rs 25,500
Depreciation over/under charged:
= Total revised depreciation - Total depreciation charged
= Rs 25,500 - Rs 34,000
= Rs 9,500 (Undercharged)
Therefore, the correct answer is option (c) Rs 9,288 (Under).
Diminishing method of depreciation provides ______.
- a)depreciation amount changes in every 2 year
- b)equal amount of depreciation every year
- c)more depreciation in initial years
- d)more depreciation in latter years
Correct answer is option 'C'. Can you explain this answer?
Diminishing method of depreciation provides ______.
a)
depreciation amount changes in every 2 year
b)
equal amount of depreciation every year
c)
more depreciation in initial years
d)
more depreciation in latter years
|
Pranavi Das answered |
Diminishing Method of Depreciation
The diminishing method of depreciation, also known as the reducing balance method or the declining balance method, is a commonly used method to calculate the depreciation expense of an asset. Under this method, the depreciation expense is higher in the initial years of the asset's useful life and gradually decreases over time.
Explanation of the Correct Answer
The correct answer to the question is option 'C', which states that the diminishing method of depreciation provides more depreciation in later years. This means that as the asset gets older, the depreciation expense decreases.
Explanation of the Diminishing Method of Depreciation
The diminishing method of depreciation is based on the concept that an asset is more productive and efficient in its early years of use and gradually becomes less productive and efficient as time goes on. Therefore, it is assumed that the asset's value should depreciate more in the earlier years to reflect this decrease in productivity.
Key Points of the Diminishing Method of Depreciation
1. Higher Depreciation in Initial Years: The diminishing method of depreciation allocates a higher proportion of the asset's total depreciation to the initial years of its useful life. This is done by applying a fixed percentage to the asset's book value each year.
2. Decreasing Depreciation Expense: As the asset ages, the diminishing method of depreciation allocates a decreasing amount of depreciation expense each year. This is because the percentage applied to the diminishing book value results in a smaller depreciation amount.
3. Lower Book Value: The book value of the asset decreases over time under the diminishing method of depreciation. This is because the depreciation expense reduces the asset's value each year.
4. Considers Asset's Useful Life: The diminishing method of depreciation takes into account the estimated useful life of the asset. The depreciation expense is calculated based on this useful life and the chosen depreciation rate.
5. Commonly Used for Assets with Higher Initial Value: The diminishing method of depreciation is often used for assets that have a higher initial value and are expected to have a longer useful life. This includes assets such as buildings, vehicles, and machinery.
Conclusion
In conclusion, the diminishing method of depreciation provides more depreciation in later years as the asset ages. This method is commonly used for assets that are more productive in their early years and gradually become less productive over time. By allocating a higher proportion of depreciation to the initial years, the diminishing method reflects the decrease in the asset's value and productivity accurately.
The diminishing method of depreciation, also known as the reducing balance method or the declining balance method, is a commonly used method to calculate the depreciation expense of an asset. Under this method, the depreciation expense is higher in the initial years of the asset's useful life and gradually decreases over time.
Explanation of the Correct Answer
The correct answer to the question is option 'C', which states that the diminishing method of depreciation provides more depreciation in later years. This means that as the asset gets older, the depreciation expense decreases.
Explanation of the Diminishing Method of Depreciation
The diminishing method of depreciation is based on the concept that an asset is more productive and efficient in its early years of use and gradually becomes less productive and efficient as time goes on. Therefore, it is assumed that the asset's value should depreciate more in the earlier years to reflect this decrease in productivity.
Key Points of the Diminishing Method of Depreciation
1. Higher Depreciation in Initial Years: The diminishing method of depreciation allocates a higher proportion of the asset's total depreciation to the initial years of its useful life. This is done by applying a fixed percentage to the asset's book value each year.
2. Decreasing Depreciation Expense: As the asset ages, the diminishing method of depreciation allocates a decreasing amount of depreciation expense each year. This is because the percentage applied to the diminishing book value results in a smaller depreciation amount.
3. Lower Book Value: The book value of the asset decreases over time under the diminishing method of depreciation. This is because the depreciation expense reduces the asset's value each year.
4. Considers Asset's Useful Life: The diminishing method of depreciation takes into account the estimated useful life of the asset. The depreciation expense is calculated based on this useful life and the chosen depreciation rate.
5. Commonly Used for Assets with Higher Initial Value: The diminishing method of depreciation is often used for assets that have a higher initial value and are expected to have a longer useful life. This includes assets such as buildings, vehicles, and machinery.
Conclusion
In conclusion, the diminishing method of depreciation provides more depreciation in later years as the asset ages. This method is commonly used for assets that are more productive in their early years and gradually become less productive over time. By allocating a higher proportion of depreciation to the initial years, the diminishing method reflects the decrease in the asset's value and productivity accurately.
Chapter doubts & questions for Depreciation and Amortisation - Accounting for CA Foundation 2025 is part of CA Foundation exam preparation. The chapters have been prepared according to the CA Foundation exam syllabus. The Chapter doubts & questions, notes, tests & MCQs are made for CA Foundation 2025 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests here.
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