Question

A Ltd. purchased a machine on $\mathrm{1.1.2006}$ for Rs.$1,20,000$. Installation expenses were $Rs10,000$. Residual value after $5$ years Rs$5,000$. On $\mathrm{1.7.2006}$, 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 $4$th year = ?

• A. Rs$25,000$
• B. Rs$13,000$
• C. Rs$10,530$
• D. Rs$9,477$

Answer 1

The correct option is D Rs$9,477$

Depreciation for 4th year :-

= 94,770 x 10/100

= RS-9,477.

Working notes :-

1) Value of machinery = 1,20,000 + 10,000

= 1,30,000.

1st year depreciation :-

= 1,30,000 x 10/100

=Rs-13,000.

2nd year depreciation :-

= (1,30,000 - 13,000) 1,17,000 x 10/100

= Rs-11,700.

3rd year depreciation :=-

= (1,17,000 - 11,700) 1,05,300 x 10/100

= Rs-10,530.

2) WDV of machinery at the beginning of 4th year =

= 1,30,000 - 13,000 - 11,700 - 10,530

= Rs-94,770.
3) Expenses for repairs are revenue expenditure. These are not considered while calculating depreciation. Only the expenses incurred till the asset becomes ready to use are added to the cost of that asset.