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Depreciation Test 17

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Depreciation Test 17
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  • Question 1
    1 / -0
    Which method is followed to have a uniform charge for depreciation and repair and maintenance together ?
    Solution
    The written down value method is charged on the book value of the asset. Since book value keeps on reducing by the annual charge of depreciation, it is also known as the reducing balance method. In this method, we charge on the value which is actually incurred in that accounting year.
  • Question 2
    1 / -0
    Consider the following data pertaining to M/s. E Ltd. who constructed a cinema house:
    Particular                                                                       Rs.
    Cost of second hand furniture                                  90,000
    Cost of the repainting the furniture                          10,000 
    Wages Paid to employees for fixing the furniture      2,000
    Fire insurance premium                                              1,000
    The amount debited to Furniture Account is ____________.
    Solution
    Amount to be debited to furniture Account 
    Cost of second hand furniture + Cost of repaint + Wages
    90000 + 10000 + 2000 = Rs 102000.

    Fire insurance premium is not included in Furniture account.

    Insurance premiums paid to the insurance companies cannot be capitalized, but expensed in profit or loss in line with an insurance policy terms.
    The reason is that these costs are not inevitable to bring the assets to the condition and location to operate as desired by the management.
  • Question 3
    1 / -0
    Date of Purchase 1st July, Purchase Price of Machine Rs. 80,000, Installation Charges Rs. 20,000. Residual Value  Rs. 40,960. Useful life 4 years, Accounting year - Financial year.
    The depreciation under SLM for the first year will be:
    Solution

     

    Purchase Price of Machine Rs. 80,000

    Installation Charges Rs. 20,000.

    Cost = Purchase Price of Machine + Installation Charges

             = 80,000+20,000 = 100000

     

    Residual Value  Rs. 40,960

    Useful life 4 years

     

    Calculation of depreciation at the end of 1st year

     

    Depreciation = Cost – Residual Value/ Estimated Useful life

                         =1,00,000-40,960/4

                         = 14760

     

    Rate of Depreciation = Annual Depreciation/Cost of machinery X 100

                                      =14760/1,00,000 X 100

                                      = 14.76%

     

     

    Book Value as on 31st March 1,00,000

    Depreciation @14.76%

    (1,00,000 X 14.76% X 9/12) = 11070.

  • Question 4
    1 / -0
    On 1st1st April 20152015 in Sethi's Ledger, furniture account showed a balance of Rs2,00,0002,00,000. On 1st1st October, 20152015 Sethi purchased new furniture by paying Rs5,0005,000 and giving old furniture whose book value on 1st1st April 20152015 was Rs 12,00012,000 to the seller. Sethi provides depreciation on furniture @ 10%10\% p.a on diminishing balance method. The net book value of furniture in Seti's book on 31.3.201631.3.2016=?
  • Question 5
    1 / -0
    Equipment was purchased on 1st1st January 20122012 for Rs25,00025,000 and is to be depreciated at 30%30\% based on reducing balance method. If the company closes its books of account on 31st31st March every year, what would be the net book value of the equipment as at 31st31st December 20132013?
    Solution

    Purchase Price of Machine on 1.01.2012 = Rs 25,000

    Rate of Depreciation = 30% p.a

     

    Calculation of depreciation as at 31st December 2013

     

    Original cost as on 1.01.2012 = Rs 25,000

    Less: Depreciation at the end

    as on 31.3.2012

    (25,000 X 30% X 3/12)            = Rs (1875)

     

    Book Value as on 1.01.2012   = Rs 23125

     

    Less: Depreciation at the end

    On 31.3.2013                          = Rs (6937)

     

    Book Value on 31.12.2013      = Rs 16187.5

     

    Less: Depreciation till

    31.12.2013                              = Rs (3642.18)

     

    Book Value as at 31.12.2013  = Rs 12545.3.

  • Question 6
    1 / -0
    M & Co. purchased a machine for a certain sum. The firm has a policy of charging 8 %  depreciation on written down value. The depreciated value of machine after three years is Rs 3,89,344. Purchase price of machine = ?
    Solution
    Depreciated value after 3 years = Rs 3,89,34
    Rate of depreciation 8%

    Calculation of purchase price:
    Purchase price = Rs  3,89,344/(1-0.08)3 x 100

     =5,00,000(Rounded off).

  • Question 7
    1 / -0
    X Ltd. Purchased a machine on 1st Jan for Rs. 2,40,000. Installation expenses were Rs. 20,000. Residual value after 5 years Rs. 10,000. On 1st July, expenses for repairs were incurred to the extent of Rs. 4,000. Depreciation rate = 10% Depreciation for 4th year will be:
    Solution
    Here , cost +installation charges =240000+20000=260000
    In SLM method , depreciation for every year is same.
    so, 260000*10%=26000
    so for 4th year , it will be 26000
  • Question 8
    1 / -0
    Consider the following information:
    I. Rate of depreciation under the written down method= 20%
    II. Original cost of the asset = Rs. 2,00,000
    III. Residual value of the asset at the end of useful life= Rs. 81,920
    Depreciation for 3rd year = 
    Solution
    Calculation of Depreciation is as follows:
    For 1st Year
    2,00,000@20% = Rs 40,000
    For 2nd Year
    1,60,000 (2,00,000-40,000)@20% = Rs 32,000
    For 3rd Year
    1,28,000 (1,60,000-32,000)@20% = Rs 25,600

  • Question 9
    1 / -0
    The W.D.V of an asset after three years of depreciation on the reducing balance method @ 10% pa. is its.36,450. What was its original value?
    Solution
    Value of asset at the end of 2nd year = value at the end of 3rd year x 100/90
                                                                    = 36,450 x 100/90 
                                                                    = RS-40,500.
    Value of asset at the end of 1st year = value at the end of 2nd year x 100/90
                                                                 = 40,500 x 100/90
                                                                 = RS-45,000.
    Original value =  Value at the end of 1st year x 100/90
                            = 45,000 x 100/90
                            = RS-50,000.
  • Question 10
    1 / -0
    On 1st1^{st} January, 2006 A Ltd purchased a machine for Rs 50,000 and spent Rs 4,000 on its carriage and Rs. 2000 on its installation. Its useful life is 10 years and scrap is Rs. 6000. Depreciation for the year under fixed installment method will be:
    Solution
    Depreciation(SLM Method) = Cost - scrap value 
                                                    ---------------------------
                                                          Useful life
                                                 = 56,000 - 6,000
                                                    -----------------------
                                                             10
                                                 = RS. 5,000.

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