Question

The original cost of the asset is Rs.2,50,000. The freight and installation charges amounted to Rs.25,000. The useful life of the assets 10 years and net residual value is estimated to be Rs. 50,000. Calculate the amount of depreciation to be charged every year under straight-line method for the year ended 31st December 2016, in each of the following conditions.
(i) When the asset has been purchased on 1st January 2016.
(ii) When the asset has been purchased on 1st Aril, 2016.

Answer 1

(i) Annual Depreciation Amount
Acquisition Cost of Asset

= $\frac{\text{Estimated Net Residual Value}}{\text{Estimated Life of Asset}}$

= $\frac{275,000–50,000}{10}=Rs.22,500$

So, if the asset was purchased on 1st, January, 2016, then depreciation charged will be Rs.22,500.
(ii) Annual depreciation = Rs. 22,500.
$\therefore$ Depreciation for the period from 1st April, 2016 to 31st December, 2016, i.e., for a period of 9 months = 22,500 $\times$9/12 = Rs. 16,875