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Depreciation Test 19

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Depreciation Test 19
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  • Question 1
    1 / -0
    A machine was purchased on 1st April 2007 for Rs 5,00,000 and 1st October 2007 for Rs 2,00,000. Calculate depreciation @ 20% p.a. on written down value method for the year ending 31st March 2008.
    Solution
    Depreciation for the year 31st march 2008:-
    = Existing machinery + new machinery
    = 1,00,000 + 20,000
    = RS-1,20,000.

    Working note:- 
    Existing machinery = Depreciable amount x rate of depreciation
                                     = 5,00,000 x 20/100
                                     = 1,00,000
    New machinery = depreciable amount x Rate of depreciation x No. of months 
                               = 2,00,000 x 20/100 x 6/12 (October to march)
                               = RS-20,000.
  • Question 2
    1 / -0
    X purchased a machinery on 01.04.2008 for Rs. 5,00,000. Depreciation is changed at WDV at the rate of 10% p.a. The written down value of the machinery for the year ending 31st march 2011 will be:
    Solution

    As per the provisions of written down value method:-

    Value of depreciation for the Year 2008-2009 is 5,00,000@10% = Rs 50,000

    Value of depreciation for the Year 2009-20010 is 4,50,000 (5,00,000-50,000)@10% = Rs 45,000

    Value of depreciation for the Year 2010-2011 is 4,05,000 (4,50,000-45,000)@10% = Rs 40,500

    Which implies that written down value of the machinery for the year ending 31st march 2011 will be Rs 3,64,500 (4,05,000-40,500).

  • Question 3
    1 / -0
    Which method of depreciation is effective if repairs and maintenance cost of an asset increases as it grows old _________________.
    Solution
    If there is no production from an asset, depreciation will be charged to the cost of expenses of repairs and maintenance i.e increasing as the asset grows older and  This is a variant of the reducing installment or diminishing balance method. the increase in the units of production, the depreciation charge also increases.
  • Question 4
    1 / -0
    A machinery is depreciated by Rs. 2000 every year. Which method is being used to calculate depreciation?
    Solution
    This is the earliest and one of the widely used methods of providing depreciation. This method is based on the assumption of equal usage of the asset over its entire useful life. It is called straight line for a reason that if the amount of depreciation and corresponding time period is plotted on a graph, it will result in a straight line.
    It is also called fixed instalment method because the amount of depreciation remains constant from year to year over the useful life of the asset. According to this method, a fixed and an equal amount is charged as depreciation in every accounting period during the lifetime of an asset.
  • Question 5
    1 / -0
    Depreciation is to be calculated from the date of _____________________.
    Solution
    As per companies Act, Depreciation is to be calculated from the date When the asset is put to use. 
  • Question 6
    1 / -0
    A machine is purchased for Rs 1,00,000. Installation charges of Rs. 10,000 were incurred. Depreciation @ 10% was provided on straight fine Bases. The machine was sold for Rs. 60,000 after 5 years. Calculate the profit or loss on sale of machine.
    Solution
    Profit/loss on sale = Sale price - WDV of the machine 
                                   = RS-60,000 - RS-55,000
                                   = RS-5,000.

    Working note:-
    WDV of the machine = cost - depreciation on machine for 5 years
                                       = 1,10,000 - (1,10,000 x 10/100 x 5 years)
                                       = 1,10,000 - 55,000
                                       = RS-55,000

  • Question 7
    1 / -0
    Under the diminishing balance method, the amount of depreciation is calculated on __________________.
    Solution
    under diminishing balance method, the amount of depreciation is calculated on the reduced value of the asset i.e. The written down value of the asset.
  • Question 8
    1 / -0
    'A' purchased a computer on 1.04.06 for Rs. 60,000. He purchased another computer on 1.10.07 for Rs. 40,000. He charges depreciation at 20% p.a. on the straight-line method. What will be the closing balance of the computer as on 31.3.09?
    Solution
    Depreciation on machinery as per SLM method:-
    Old machinery ( 1.04.06 - 31.3.09)
    = 60,000 x 20/100 x 3 years 
    = RS-36,000.

    New machinery (1.10.07 - 31.03.09) 
    = 40,000 x 20/100 x 1 year and 6 months
    = 8,000 + 4,000
    = RS-12,000.
    WDV of the balance as on 31.03.2009:-
    = (60,000 + 40,000) - (36,000 + 12,000) 
    = RS-52,000
  • Question 9
    1 / -0
    If the rate of depreciation is the same, then the amount of depreciation under straight line method as compare to written down value method will be:
    Solution

    Fixed Installment Method or Equal Installment Method or Straight Line Method or Fixed Percentage on Original Cost Method: In this method a fixed or equal amount of depreciation written off as depreciation at the end of each year, during the life time of the asset.

    Written Down Value Method or Diminishing Balance Method or Reducing Balance Method: It can be calculated by a method of depreciation that is sometimes called the diminishing balance method. This accounting technique reduces the value of an asset by a set percentage each year.  When selling the asset, the book value is used to help determine the minimum value for which it will be sold.

  • Question 10
    1 / -0
    Asset purchase on 1st April 2012 at Rs.100000. Calculate the amount of asset on 1st April 2017, depreciation @ 20% p.a. under the straight-line method.
    Solution
    Purchase Price of Asset = 100,000
    Depreciation = 20%
    Depreciation amount = 100,000x20% = 20,000
    Total Depreciation for 5 years (i.e., 1st April 2012 to 1st April 2017) = 20,000 x 5 years
                                                                        = 100,000
    Therefore, the Value of asset as on 1st April 2017 = Purchase Price (1st April 2012) - Depreciation for 5 years.
                         = 100,000 - 100, 000
                         = 0
     
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