Question

On 1st April 2012, X Ltd. purchased a machinery for Rs. 12,00,000. On 1 Oct 2014. a part of the machinery purchased on 1 April 2012 for Rs. 80,000 was sold for Rs. 45,000 and a new machinery at a cost of Rs. 80,000 was purchased and installed on the same date. The company has adopted the method of providing 10% p.a. depreciation on the original cost basis. The closing balance of 'Provision for Depreciation Account' as at 31.03.2015 will be:

• A. Rs. 1,20,000
• B. Rs. 2,28,000
• C. Rs. 3,14,000
• D. Rs. 3,40,000

Answer 1

The correct option is D Rs. 3,40,000

Balance in 'Provision for depreciation Account" as on 31.03.2015:-

= depreciation on unsold machinery + Depreciation on new machinery

= RS- 3,36,000 + RS-4,000

RS-3,40,000.

Working notes:-

1) Depreciation on existing machinery from 1.4.2012 to 31.03.2015 (3 years):-

= (12,00,000 - 80,000) 11,20,000 x 10/100 x 3 years

= RS-3,36,000

2) Depreciation on new machinery from 1.10.2014 to 31.03.2015 (6months)

= 80,000 x 10/100 x 6/12

= RS-4,000.