8 A company purchased on Ist July 2003 at a cost of Rs. 14,000 and Rs....
Calculation of Depreciation under Straight Line Method
Given Information:
- Cost of the company: Rs. 14,000
- Installation cost: Rs. 1,000
- Depreciation rate: 10% per year
- Books closed on 31st December each year
Straight Line Method:
Under the straight line method, the same amount of depreciation is charged every year over the useful life of the asset.
Calculation of Annual Depreciation:
The annual depreciation can be calculated using the following formula:
Annual Depreciation = (Cost - Salvage Value) / Useful Life
In this case, the cost of the company is Rs. 14,000 and the installation cost is Rs. 1,000. Therefore, the total cost of the asset is Rs. 15,000.
Salvage value is the estimated value of the asset at the end of its useful life. Since no salvage value is given, it is assumed to be zero.
The useful life of the asset is not provided in the given information, so we will assume it to be 10 years.
Annual Depreciation = (15,000 - 0) / 10 = Rs. 1,500
Depreciation Schedule:
Year 1:
- Opening Book Value: Rs. 15,000
- Depreciation Expense: Rs. 1,500
- Closing Book Value: Rs. 13,500
Year 2:
- Opening Book Value: Rs. 13,500
- Depreciation Expense: Rs. 1,500
- Closing Book Value: Rs. 12,000
Year 3:
- Opening Book Value: Rs. 12,000
- Depreciation Expense: Rs. 1,500
- Closing Book Value: Rs. 10,500
Year 4:
- Opening Book Value: Rs. 10,500
- Depreciation Expense: Rs. 1,500
- Closing Book Value: Rs. 9,000
Year 5:
- Opening Book Value: Rs. 9,000
- Depreciation Expense: Rs. 1,500
- Closing Book Value: Rs. 7,500
Year 6:
- Opening Book Value: Rs. 7,500
- Depreciation Expense: Rs. 1,500
- Closing Book Value: Rs. 6,000
Year 7:
- Opening Book Value: Rs. 6,000
- Depreciation Expense: Rs. 1,500
- Closing Book Value: Rs. 4,500
Year 8:
- Opening Book Value: Rs. 4,500
- Depreciation Expense: Rs. 1,500
- Closing Book Value: Rs. 3,000
Year 9:
- Opening Book Value: Rs. 3,000
- Depreciation Expense: Rs. 1,500
- Closing Book Value: Rs. 1,500
Year 10:
- Opening Book Value: