Question

A Ltd. purchased a machine on 1.1.2006 for Rs. $1,20,000$. Installation expenses were Rs. $10,000$. Residual value after 5 years Rs. $5,000$. On 1.7.2006, expenses for repairs were incurred to the extent of Rs. $2,000$. Depreciation is provided @ $10$% p.a. 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 $Rs.9,477$

Total cost of asset: $Rs.1,20,000$ + $Rs.10,000$= $Rs.1,30,000$

Depreciation is calculated as follow:

1st year: $Rs.1,30,000$ X $10$%=$13,000$

2nd year: $Rs.1,30,000$-$Rs.13,000$=$1,17,000$ X $10$% = $11,700$

3rd year: $Rs.1,17,000$-$Rs.11,700$=$Rs.1,05,300$ X $10$%= $Rs.10,530$

4th year: $Rs.1,05,300$-$Rs.10,530$=$Rs.94,770$ X $10$%= $Rs.9,477$

Installation expenses are added to arrive at the total cost of asset but repairs are debited to P/L A/c.