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Q.1 Calculate the Amount of annual Depreciation and Rate of Depreciation under Straight Line Method
(SLM) from the following:
Purchased a second-hand machine for ? 96,000, spent ? 24,000 on its cartage, repairs and installation,
estimated useful life of machine 4 years. Estimated residual value ? 72,000.
The solution can be presented as follows
Annual Depreciation = (Cost of Machine -Scrap Value of Machine) / Life in Years
= (1,20,000 - 72,000) / 4
= 48000 / 4
= ? 12,000
Rate of Depreciation = (Amount of Depreciation / Cost of Machine) ×100
= (12,000/1,20,000) ×100
=10%
Q.2 On 1st April, 2019, X Ltd. purchased a machine costing ? 4,00,000 and spent ? 50,000 on its
installation. The estimated life of the machinery is 10 years, after which its residual value will be ? 50,000
only. Find the amount of annual depreciation according to the Fixed Instalment Method and prepare
Machinery Account for the first three years. The books are closed on 31st March every year.
The solution can be presented as follows
Page 2
Q.1 Calculate the Amount of annual Depreciation and Rate of Depreciation under Straight Line Method
(SLM) from the following:
Purchased a second-hand machine for ? 96,000, spent ? 24,000 on its cartage, repairs and installation,
estimated useful life of machine 4 years. Estimated residual value ? 72,000.
The solution can be presented as follows
Annual Depreciation = (Cost of Machine -Scrap Value of Machine) / Life in Years
= (1,20,000 - 72,000) / 4
= 48000 / 4
= ? 12,000
Rate of Depreciation = (Amount of Depreciation / Cost of Machine) ×100
= (12,000/1,20,000) ×100
=10%
Q.2 On 1st April, 2019, X Ltd. purchased a machine costing ? 4,00,000 and spent ? 50,000 on its
installation. The estimated life of the machinery is 10 years, after which its residual value will be ? 50,000
only. Find the amount of annual depreciation according to the Fixed Instalment Method and prepare
Machinery Account for the first three years. The books are closed on 31st March every year.
The solution can be presented as follows
Working Note:
Depreciation can be calculated as
Depreciation = (4,00,000 + 50,000 – 50,000) / 10
= 4,00,000 / 10
= 40,000
Page 3
Q.1 Calculate the Amount of annual Depreciation and Rate of Depreciation under Straight Line Method
(SLM) from the following:
Purchased a second-hand machine for ? 96,000, spent ? 24,000 on its cartage, repairs and installation,
estimated useful life of machine 4 years. Estimated residual value ? 72,000.
The solution can be presented as follows
Annual Depreciation = (Cost of Machine -Scrap Value of Machine) / Life in Years
= (1,20,000 - 72,000) / 4
= 48000 / 4
= ? 12,000
Rate of Depreciation = (Amount of Depreciation / Cost of Machine) ×100
= (12,000/1,20,000) ×100
=10%
Q.2 On 1st April, 2019, X Ltd. purchased a machine costing ? 4,00,000 and spent ? 50,000 on its
installation. The estimated life of the machinery is 10 years, after which its residual value will be ? 50,000
only. Find the amount of annual depreciation according to the Fixed Instalment Method and prepare
Machinery Account for the first three years. The books are closed on 31st March every year.
The solution can be presented as follows
Working Note:
Depreciation can be calculated as
Depreciation = (4,00,000 + 50,000 – 50,000) / 10
= 4,00,000 / 10
= 40,000
Q.3 On 1st April, 2015, furniture costing ? 55,000 was purchased. It is estimated that its life is 10 years at
the end of which it will be sold for ? 5,000. Additions are made on 1st April 2016 and 1st October, 2018 to
the value of ? 9,500 and ? 8,400 (Residual values ? 500 and ? 400 respectively). Show the Furniture
Account for the first four years, if Depreciation is written off according to the Straight-Line Method.
The solution can be presented as follows
Page 4
Q.1 Calculate the Amount of annual Depreciation and Rate of Depreciation under Straight Line Method
(SLM) from the following:
Purchased a second-hand machine for ? 96,000, spent ? 24,000 on its cartage, repairs and installation,
estimated useful life of machine 4 years. Estimated residual value ? 72,000.
The solution can be presented as follows
Annual Depreciation = (Cost of Machine -Scrap Value of Machine) / Life in Years
= (1,20,000 - 72,000) / 4
= 48000 / 4
= ? 12,000
Rate of Depreciation = (Amount of Depreciation / Cost of Machine) ×100
= (12,000/1,20,000) ×100
=10%
Q.2 On 1st April, 2019, X Ltd. purchased a machine costing ? 4,00,000 and spent ? 50,000 on its
installation. The estimated life of the machinery is 10 years, after which its residual value will be ? 50,000
only. Find the amount of annual depreciation according to the Fixed Instalment Method and prepare
Machinery Account for the first three years. The books are closed on 31st March every year.
The solution can be presented as follows
Working Note:
Depreciation can be calculated as
Depreciation = (4,00,000 + 50,000 – 50,000) / 10
= 4,00,000 / 10
= 40,000
Q.3 On 1st April, 2015, furniture costing ? 55,000 was purchased. It is estimated that its life is 10 years at
the end of which it will be sold for ? 5,000. Additions are made on 1st April 2016 and 1st October, 2018 to
the value of ? 9,500 and ? 8,400 (Residual values ? 500 and ? 400 respectively). Show the Furniture
Account for the first four years, if Depreciation is written off according to the Straight-Line Method.
The solution can be presented as follows
Working Notes:
We know that
Annual Depreciation = (Cost of Asset -Scrap Value of Asset) / Life in Years
Now for Furniture 1
Annual Depreciation = (55000 – 5000) / 10
= 50000 / 10
= 5000
Furniture 2
Annual Depreciation = (9500 – 500) / 10
= 9000 / 10
= 900
Furniture 3
Annual Depreciation = (8400 – 400) / 10
= 8000 / 10
= 800
As furniture was purchased 6 months into the accounting hence depreciation for 6 months will be half therefore it
will be 400.
Page 5
Q.1 Calculate the Amount of annual Depreciation and Rate of Depreciation under Straight Line Method
(SLM) from the following:
Purchased a second-hand machine for ? 96,000, spent ? 24,000 on its cartage, repairs and installation,
estimated useful life of machine 4 years. Estimated residual value ? 72,000.
The solution can be presented as follows
Annual Depreciation = (Cost of Machine -Scrap Value of Machine) / Life in Years
= (1,20,000 - 72,000) / 4
= 48000 / 4
= ? 12,000
Rate of Depreciation = (Amount of Depreciation / Cost of Machine) ×100
= (12,000/1,20,000) ×100
=10%
Q.2 On 1st April, 2019, X Ltd. purchased a machine costing ? 4,00,000 and spent ? 50,000 on its
installation. The estimated life of the machinery is 10 years, after which its residual value will be ? 50,000
only. Find the amount of annual depreciation according to the Fixed Instalment Method and prepare
Machinery Account for the first three years. The books are closed on 31st March every year.
The solution can be presented as follows
Working Note:
Depreciation can be calculated as
Depreciation = (4,00,000 + 50,000 – 50,000) / 10
= 4,00,000 / 10
= 40,000
Q.3 On 1st April, 2015, furniture costing ? 55,000 was purchased. It is estimated that its life is 10 years at
the end of which it will be sold for ? 5,000. Additions are made on 1st April 2016 and 1st October, 2018 to
the value of ? 9,500 and ? 8,400 (Residual values ? 500 and ? 400 respectively). Show the Furniture
Account for the first four years, if Depreciation is written off according to the Straight-Line Method.
The solution can be presented as follows
Working Notes:
We know that
Annual Depreciation = (Cost of Asset -Scrap Value of Asset) / Life in Years
Now for Furniture 1
Annual Depreciation = (55000 – 5000) / 10
= 50000 / 10
= 5000
Furniture 2
Annual Depreciation = (9500 – 500) / 10
= 9000 / 10
= 900
Furniture 3
Annual Depreciation = (8400 – 400) / 10
= 8000 / 10
= 800
As furniture was purchased 6 months into the accounting hence depreciation for 6 months will be half therefore it
will be 400.
Q.4 From the following transactions of a concern, prepare the Machinery Account for the year ended 31st
March, 2019:
1st April, 2018 : Purchased a second-hand machinery for ? 40,000
1st April, 2018 :
Spent ? 10,000 on repairs for making it
serviceable.
30th September,
2018
: Purchased additional new machinery for ? 20,000.
31st December,
2018
: Repairs and renewal of machinery ? 3,000.
31st March, 2019 : Depreciate the machinery at 10% p.a.
The solution can be presented as follows
Note: The expenses for repair will not be accounted as repair was done after the machine was put to use.
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FAQs on Depreciation - 1 - Accountancy Class 11 - Commerce
| 1. What is depreciation, and why is it important in commerce? |  |
Ans.Depreciation refers to the reduction in the value of an asset over time due to wear and tear, usage, or obsolescence. It is crucial in commerce as it helps businesses accurately represent the value of their assets on financial statements, affects tax calculations, and assists in budgeting for replacement of assets.
| 2. What are the different methods of calculating depreciation? | |
Ans.The most common methods of calculating depreciation include straight-line depreciation, which spreads the cost evenly over the asset's useful life; declining balance depreciation, which finds a higher expense in the earlier years; and units of production depreciation, which ties the expense to the actual usage of the asset. Each method serves different financial strategies and asset types.
| 3. How does depreciation affect a business's financial statements? | |
Ans.Depreciation impacts a business's financial statements by reducing the book value of assets on the balance sheet and decreasing net income on the income statement. This can influence financial ratios, tax liabilities, and investment decisions, providing a more realistic view of the business's financial health.
| 4. Is depreciation a non-cash expense, and what does that mean? | |
Ans.Yes, depreciation is considered a non-cash expense because it does not involve an actual cash outflow during the accounting period. Instead, it reflects the allocation of an asset's cost over time, allowing businesses to account for the wearing out of assets while managing cash flow effectively.
| 5. What role does depreciation play in tax calculations? | |
Ans.Depreciation plays a significant role in tax calculations as it allows businesses to deduct the depreciation expense from their taxable income. This reduction in taxable income can lead to lower tax liabilities, making it an important consideration for financial planning and tax strategy.
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