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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?
Most Upvoted Answer
B Limited has been charging depreciation on the straight line method. ...
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.
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Community Answer
B Limited has been charging depreciation on the straight line method. ...
Here the question is asked about applying wdv method at 1st year .This means starting of the year when the equipment was purchased. So we have to calculate Depreciation of 1st year by wdv method
that is 350000×8/100=28000
and the remaining value of equipment is now 350000-28000=322000
so the answer is option C.
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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 isa)Rs 2,72,541b)Rs 2,96,240c)Rs 3,22,000d)Rs 3,60,000Correct answer is option 'C'. Can you explain this answer?
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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 isa)Rs 2,72,541b)Rs 2,96,240c)Rs 3,22,000d)Rs 3,60,000Correct answer is option 'C'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about 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 isa)Rs 2,72,541b)Rs 2,96,240c)Rs 3,22,000d)Rs 3,60,000Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 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 isa)Rs 2,72,541b)Rs 2,96,240c)Rs 3,22,000d)Rs 3,60,000Correct answer is option 'C'. Can you explain this answer?.
Solutions for 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 isa)Rs 2,72,541b)Rs 2,96,240c)Rs 3,22,000d)Rs 3,60,000Correct answer is option 'C'. Can you explain this answer? in English & in Hindi are available as part of our courses for CA Foundation. Download more important topics, notes, lectures and mock test series for CA Foundation Exam by signing up for free.
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