On 01.08.2011, K Travels Ltd. bought 4 Matador vans costing 1,20,000 e...
Initial Purchase and Depreciation under Fixed Installment Method
On 01.08.2011, K Travels Ltd. bought 4 Matador vans at a cost of 1,20,000 each. The total cost of the vans is 4 * 1,20,000 = 4,80,000.
The company expected to fetch a scrap value of 25% of the cost price of the vehicles after 10 years, which is 25% of 4,80,000 = 1,20,000.
Let's calculate the depreciation for the vans under the fixed installment method up to March 31, 2014.
The total depreciation to be charged over a period of 10 years is 4,80,000 - 1,20,000 = 3,60,000.
Therefore, the annual depreciation under the fixed installment method is 3,60,000 / 10 = 36,000.
For the first 3 years, the depreciation charged would be 36,000 * 3 = 1,08,000.
Introduction of Diminishing Balance Method
With effect from April 01, 2014, the company decided to introduce the diminishing balance method at a rate of 20% per annum instead of the fixed installment method.
Let's calculate the depreciation for the vans under the diminishing balance method from April 01, 2014.
The remaining carrying value of the vans after 3 years of depreciation under the fixed installment method is 3,60,000 - 1,08,000 = 2,52,000.
Using the diminishing balance method at a rate of 20% per annum, the depreciation for the first year would be 20% of 2,52,000 = 50,400.
The carrying value after the first year of depreciation would be 2,52,000 - 50,400 = 2,01,600.
Similarly, the depreciation for the second year would be 20% of 2,01,600 = 40,320.
The carrying value after the second year of depreciation would be 2,01,600 - 40,320 = 1,61,280.
Sale of One Van
Now, let's calculate the carrying value of the vans after 10 years of depreciation under the diminishing balance method.
The carrying value after 10 years would be 1,61,280 * (1 - 0.2)^10 = 1,61,280 * 0.107374 = 17,32,485.09 (approx).
Since the company expected to fetch a scrap value of 25% of the cost price of the vans after 10 years, the scrap value would be 4,80,000 * 0.25 = 1,20,000.
Therefore, the amount received from the sale of one van would be the carrying value minus the scrap value, which is 17,32,485.09 - 1,20,000 = 16,12,485.09 (approx).
Conclusion
The company sold one of the Matador vans at a price of approximately 16,12,485.09.