On $1 - 1 - 2014$ , a company acquired a car for Rs. $350, 000$ on instalment basis and paid Rs. $1, 50, 000$ as down payment whose cash price was Rs. $3, 00, 000$ . During $2014$ , one instalment of Rs. $50, 000$ (including Rs. $15, 000$ interest) was paid. The amount of depreciation for the year $2016$ at $10 %$ on SLM is ___________.

R s .35, 000

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R s .20, 000

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R s .30, 000

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R s .18, 500

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Solution

The correct option is D $R s .30, 000$
If anything is purchased on installment basis, it comprises of interest expense in the total cost.
Here, the cash price of the car is $R s .3, 00, 000$ whereas company acquired it at $R s .3, 50, 000$ which clearly indicates $R s .50, 000$ is paid towards interest expense and interest expense can not be capitalized.
Therefore, Depreciation is calculated on the actual price of the car i.e. $R s .3, 00, 000$ X $10$ %= $R s .30, 000$ on SLM basis.

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