Question

A Co. purchased a machine on Jan 1, 03 for Rs. $2,20,000$. Installations expenses were Rs. $40,000$. 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 will be ___________.

• A. Rs. $52,000$
• B. Rs. $26,000$
• C. Rs. $21,060$
• D. Rs. $18,954$

Answer 1

The correct option is D Rs. $18,954$

Total cost of machine: Cost of Machine + Installation expenses= $Rs.2,20,000$+$Rs.40,000$= $Rs.2,60,000$

Since we are calculating depreciation as per WDV method, residual method and expenses for repairs will not be considered in calculating depreciation.

Hence depreciation is calculated on total cost as follows:

1st year: $Rs.2,60,000$X 10%= $Rs.26,000$

2nd year: $Rs.2,60,000$- $Rs.26,000$=$Rs.2,34,000$X $10$%= $Rs.23,400$

3rd year:$2,34,000$- $Rs.23,400$=$Rs.2,10,600$ X $10$%= $Rs.21,060$

4th year:$Rs.2,10,600$-$Rs.21,060$=$Rs.1,89,540$ X $10$%= $Rs18,954$