Question

A Co. purchased a machine on Jan 1. 2003, for Rs. $1,20,000$. Installation expenses were Rs. $10,000$. Residual value after 5 years Rs. $5,000$. On July 1, 2003, expenses for repairs were incurred to the extent of Rs. $2,000$. Depreciation is provided under straight line method. Annual Depreciation will be _______________.

• A. Rs. $13,000$
• B. Rs. $24,000$
• C. Rs. $21,000$
• D. Rs. $25,000$

Answer 1

The correct option is D Rs. $25,000$

Purchase Price of machine = 1,20,000
Installation expenses = 10,000
Total cost of machine = 1,20,000+10,000
=1,30,000
Depreciation = Cost Of Machine - salvage value / estimated life of machine
= 1,30,000 - 5000/ 5
Annual Depreciation = 25000
All the expenses before an asset become ready to use is added into the asset.
Expenses done after an asset becomes ready to use is debited to profit and loss account.