CA FOUNDATION - ACCOUNTANCY

DEPRECIATION

PART - A: THEORY SECTION

1. Meaning
(A) General meaning: Reduction in value of fixed assets due to physical wear &
tear.

(B) Specific meaning: Allocation of capital expenditure over useful life of the
assets.

2. Depreciation Method
(A) Fixed installment method / Straight line method / Original cost method
Under this method, the amount of depreciation to be charged every year
remains constant as the depreciation is calculated as a fixed percentage of
original cost of the asset. Normally this method is used when useful life of
the asset can be estimated in advance. In this method depreciation amount
and depreciation rate remains same. The value of the asset will be zero at
end of useful life in this method. To calculate depreciation rate (in theory) in
this method depreciation per annum is divided by cost of asset. The amount of
annual depreciation is determined by following formula.

O.C.of asset – Estimated Scrap Value

Annual Depreciation =
Estimated useful life of asset

(B) Reducing balance method / Written down value method / Diminishing balance method
Under this method, the amount of depreciation goes on reducing every year as
the depreciation is calculated on WDV of the asset.

This method is more practical as compared to SLM because under this method,
the asset account never becomes nil. The asset account will continue to appear
is the books till the time asset is physically existing.

1
 CA FOUNDATION - ACCOUNTANCY

Under this method the overall charge on profit and loss a/c because of use of
asset remains more or less constant as the amount of depreciation under this
method reduces year after year and against this the maintenance expenditure
increases every year. Income tax rules prescribes this method.

Under WDV method, if the rate of depreciation is not given, then it will be
calculated as under.

Residual Value
Rate of depreciation = 1 – n x 100
Cost of asset

(C) Depletion method

Normally this method of charging depreciation is used in case of self-extracting
assets (wasting assets) like coal mines, oil fields, forests etc. Normally the cost
of such assets depends upon the total output which is expected to be extracted
from the asset over its useful life. Hence the depreciation on these assets will
also depend upon the output actually extracted year after year

Annual Depreciation = O.C.of the mine - estimated Scrap value x Actual output
Total output estimated from the mine
extracted in the year

D) Machine hour rate method

This method of charging depreciation is used if the useful life of the asset can
be estimated in terms of number of hours and the depreciation for year after
year will be determined on the basis of actual no. of hours for which the
asset is actually used every year.

OC of the machine - estimated scrap value
Depreciation for the year = x Actual production in
Total no.of hours in useful life
units in the current year

(E) Production units method

This method is used for charging depreciation on machinery where the useful
life is expressed in terms of number of units the machine can produce over its
useful life and the depreciation for year after year will depend on the no of
units actually produced during the year. This method is mostly applicable to
machines producing product of uniform specification.

2
 CA FOUNDATION - ACCOUNTANCY

OC of the machine - estimated scrap value

Depreciation for the year = x Actual production
“Total production estimated in units”
in units in the
current year

(F) Sum of the years digits method

This method is developed to combine the advantages of SLM & RBM. Under this
method the amount of depreciation will reduce every year & still the assets
will become zero at the end of its useful life

OC of the machine - estimated scrap value
Depreciation for the year = x years left including CY
Sum of the digits of no.of years in useful life

3. Alternative Depreciation Accounting Systems

(A) Provision for depreciation system
Under this system, the depreciation is not credited to the asset account but it
is credited to a specially opened account called “Provision for Depreciation
A/c”. The asset account will continue to remain at its original cost and the
depreciation gets accumulated in provision for depreciation account.

Entry for Charging Depreciation
Depreciation A/c Dr.
xxx
To Provisions for depreciation A/c xxx

Note: WDV on any particular date can be determined by reducing provision for
depreciation from original cost.

WDV = OC - PFD

Entry when the asset is sold

Cash / Bank a/c Dr. xxx
Provision for Depreciation a/c Dr. xxx
P & L a/c (loss on sale) Dr. xxx
To Assets (O.C) a/c xxx
To P & L a/c (profit on sale) xxx

(B) Preparation of Asset disposal account

When the organisation has several sale of assets during the year then it may

3
 CA FOUNDATION - ACCOUNTANCY

adopt preparation of asset disposal a/c to determine net profit or net loss on
all the sales put together. The Entries are passed as under:

Step: 1 Record Sales proceeds

Cash / Bank A/c Dr. xx
To Asset disposal A/c xx

Step: 2 Transfer O.C. of asset sold to asset disposal A/c

Asset disposal A/c Dr. xx
To Asset A/c xx

Step: 3 Transfer accumulated depreciation on asset sold to asset disposal A/c

PFD A/c Dr.
xx
To Asset disposal A/c xx

Note: The net balance in asset disposal a/c at the end of the year r epresents
net profit or loss on all the sales effected during the year and it should be
transferred to profit and loss account.

4. Other Issues (As per Accounting Standards)

(A) Change in the Method of Deprecation
Whenever any change in depreciation method is made, such change in method
is treated as change in accounting estimate & not change in accounting policy.
As per revised AS, at the time of change in method of providing depreciation
the effect of change should be given PROSPECTIVELY and not RETROSPECTIVELY
as suggested by old AS.

(B) Revision of Estimated Useful Life of Property, Plant and Equipment
Useful life of tangible fixed assets are given under schedule. II of Companies
Act, 2013. The residual value and the useful life of an asset should be reviewed
at least at each financial year end and, if expectations differ from previous
estimates, the change(s) should be accounted for as a change in an accounting
estimate in accordance with According Standards.

Whenever there is a revision in the estimated useful life of the asset, the

4
 CA FOUNDATION - ACCOUNTANCY

unamortised depreciable amount should be charged to the asset over the

revised remaining estimated useful life of the asset.

(C) Revaluation of Property, Plant and Equipment

If there is an upward revision in the value of asset for the first time, then the
amount of appreciation is debited to Asset Account and credited to Revaluation
Reserve Account. If an asset was earlier revalued downward and later on
revalued upward then the appreciation to the extent of earlier downfall is
credited to profit and loss account. If there is downward revision in the value
of asset then Profit and Loss Account is debited and Asset Account is credited.
If an asset was earlier revalued upward and then later on it was revalued
downward then the downfall to the extent of earlier appreciation is debited to
Revaluation Reserve Account. In case the revaluation has a material effect on
the amount of depreciation, the same should be disclosed separately in the
year in which revaluation is carried out. It is shown in following chart.

5. Point to Remember
a. Depreciation is a process of allocating cost of asset to estimated useful life of
asset.

b. Depreciation is charged from date when asset is available for use.

c. Objective of providing depreciation is

5
 CA FOUNDATION - ACCOUNTANCY

i. To find correct Profit / Loss, correct value of asset and cost of production
ii. Provide funds for replacement.

d. Depreciation is charge against profit and not appropriation. It is not at discretion

of management.

e. Causes of depreciation are

i. Physical wear and tear
ii. Passage of time
iii. Obsolescence i.e. out dated due to technological changes, change in
demand, legal restriction or innovation and invention.

f. Depreciation is charged on fixed asset.

g. Fixed asset is asset held for purpose of production of goods and services or
providing administrative or rental purpose.

h. In case of companies depreciation is provided as per schedule II of companies

Act, 2013.
i. WDV (Book value) = Cost (-) Accumulated depreciation
Depreciable amount = Cost – Scrap

j. Depreciation on intangible asset is called amortisation

k. Depreciation is a non-cash expenditure.

l. Calculation of depreciation are based on 3 factors (factors affecting amount of

depreciation)

Cost of asset Estimated useful life Residual value

Means purchase cost + all Period over which asset Residual value at end of
expenses to bring asset is available for use or estimated useful life
to working condition + number of similar units
Expenses which increases expected to be obtained
efficiency or capacity of from asset
asset

6
 CA FOUNDATION - ACCOUNTANCY

PART B - CLASSWORK SECTION

Q.1 A company whose accounting year is calendar year purchased on 1st April, 2004
machinery costing ` 30,000. It purchased further machinery on 1st October, 2004
costing ` 19,000, and the installation charges amounted to ` 1,000. On July 1st,
2006 one third of the machinery installed on 1st April, 2004 was sold off for `
3,000.

Depreciation is being written off at 10% p.a. Prepare Machinery Account as it
would appear in the ledger of the company for the years 2004, 2005 and 2006.
(a) By SLM
(b) By RBM

Q.2 A Company whose accounting year is the financial year purchased on 1st July, 2004,
machinery costing ` 40,000.It further purchased on 1st October 2004, machinery
costing ` 20,000 and on 1st July, 2005, it purchased additional machinery costing
` 10,000.

On 1st october, 2006, one fourth of the machinery which was installed on 1st July,
2004, became obsolete and was sold for ` 3 ,000.
Show how the machinery account would appear in the books of the company the
machinery being depreciated at 10%p.a. and a separate Provision for Depreciation
A/c being maintained.
(1) Show necessary accounts (a) By SLM (b) By RBM
(2) Also show entries for 2006-07 if asset disposal a/c is used.

Q.3 A mine costing ` 30,000 has been acquired. The estimated quantity of ore in the
mine is 3 lakh tons. The output for the first 3 years is 5,640 tons, 16,560 tons and
20,100 tons respectively. The residual value of the mine will be nil. Show the Mine
A/c using the Depletion Method.

Q.4 A company purchases a Plant (consisting of group of machines) for ` 10,000 which
it intends to use for 3 years and then scrap. The estimated working hours of the
plant for the three years are 9,600; 12,120 and 8,040 respectively. The scrap
value is estimated to be ` 80. Show the Plant A/c for 3 years, using the Machine
Hour Rate Method.

7
 CA FOUNDATION - ACCOUNTANCY

Q.5 Matadeen purchased one asset for ` 8,400 and estimated its life at 6 years. Show
the Asset A/c for the first three years if depreciation is charged under the sum of
years digit method.

Q.6 A machine is purchased for ` 2,00,000. Its estimated useful life is 10 years with a
residual value of ` 20,000. The machine is expected to produce 1.5 lakh units during
its life time. Expected distribution pattern of production is as follows:

Year Production
1-3 20,000 units per year
4-7 15,000 units per year
8 - 10 10,000 units per year

Determine the value of depreciation for each year using production units method.

Q.7 Cost of Machine ` 1,05,000

Residual Value ` 5,000
Useful life 10 years
The company charges depreciation on straight line method for the first two years and
thereafter decides to adopt written down value method by charging depreciation @
25% (calculated on the basis of useful life). You are required to calculate depreciation
for the 3rd year.

Q.8 A manufacturing firm purchased on 1st January, 2016, certain mill machinery for
` 19,400 and spent ` 600 on its erection. On 1st July, in the same year additional
machinery costing ` 10,000 was acquired. He purchased one more machine on 1st
April, 2017 for ` 20,000.

On 1st July, 2018 the machinery purchased on 1st January, 2016 having become
obsolete was auctioned for ` 8,000 and on the same date fresh machinery was
purchased at a cost of ` 15,000.

Depreciation was provided annually on 31st December at the rate of 10% p.a.
on the original cost of the asset. In 2019, however, the firm changed this method
and adopted the method of writing off 10% on the written down value. Give the
Machinery Account as it would appear for the year from 2016 to 2019. Make your
calculations to the nearest rupee.

8
 CA FOUNDATION - ACCOUNTANCY

Q.9 M/s Suba Pharmaceuticals has imported a machine on 1st July, 2017 for ` 6,40,000.
They also paid customs duty and freight ` 80,000 and incurred erection charges `
60,000. Another local machinery costing ` 1,00,000 was purchased on January 1,
2018. On 1st July, 2019 a portion of the imported machinery (value one third) got
out of order and was sold for ` 1,34,800. Another machinery was purchased to
replace the same for ` 50,000. Depreciation is to be calculated at 20% p.a. Show
the Machinery account for 2017, 2018 & 2019, using WDV method and provision for
depreciation account was maintained.

Q.10 A machine of cost `12,00,000 is depreciated straight-line assuming 10 year working

life and zero residual value for three years. At the end of third year, the machine
was revalued upwards by ` 60,000 the remaining useful life was reassessed at 9
years.

Find Depreciation for 4th year.

Q.11 M/s Anshul commenced business on 1st January 2015, when they purchased plant
and equipment for ` 7,00,000. They adopted a policy of charging depreciation at
15% per an- num on diminishing balance basis and over the years, their purchases
of plant have been:

Date Amount `
1-1-2016 1,50,000
1-1-2019 2,00,000

On 1-1-2019 it was decided to change the method and rate of depreciation to

straight line basis. On this date remaining useful life was assessed as 6 years for
all the assets purchased before 1.1.2019 and 10 years for the asset purchased on
1.1.2019 with no scrap value.

Required Calculate the depreciation to be charge in the Plant and Equipment Account
for the year ending 31st December, 2019 and prepare plant & equipment account
for 2019.

Q.12 A firm’s plant and machinery account at 31st December, 2014 and the corresponding

9
 CA FOUNDATION - ACCOUNTANCY

depreciation provision account, broken down by year of purchase are as follows:

Year of Purchase Plant and Machinery Depreciation

Provision `
1998 2,00,000 2,00,000
2004 3,00,000 3,00,000
2005 10,00,000 9,50,000
2006 7,00,000 5,95,000
2013 5,00,000 75,000
2014 3,00,000 15,000
30,00,000 21,35,000

Depreciation is at the rate of 10% per annum on cost. It is the Company’s policy to
assume that all purchases, sales or disposal of plant occurred on 30th June in the
relevant year for the purpose of calculating depreciation, irrespective of the precise
date on which these events occurred.

During 2015 the following transactions took place:

1. Purchase of plant and machinery amounted to ` 15,00,000
2. Plant that had been bought in 2004 for ` 170,000 was scrapped.
3. Plant that had been bought in 2005 for ` 90,000 was sold for ` 5,000.
4. Plant that had been bought in 2006 for ` 2,40,000 was sold for ` 15,000.

You are required to: Calculate the provision for depreciation of plant and machinery
for the year ended 31st December, 2015. In calculating this provision you should
bear in mind that it is the company’s policy to show any profit or loss on the sale or
disposal of plant as a completely separate item in the Profit and Loss Account. You
are also required to prepare the following ledger accounts during 2015.
(i) Plant and machinery at cost;
(ii) Depreciation provision;
(iii) Sales or disposal of plant and machinery.

10
 CA FOUNDATION - ACCOUNTANCY

PART C - HOMEWORK SECTION

Q.1 The Machinery Account in the books of Ramlal showed a debit balance of `15,000
on 1st April, 2018.

On 1st October, 2018, he purchased a machinery costing `10,000.

On 1st January, 2019 he sold out one old machine for ` 2,000 whose book - value
in the beginning of the year was ` 3,000. Machinery is to be depreciated at the
fixed rate of 10% on diminishing balance method. Show the machinery account
for the year ending 31st March,2019.

Q.2 Hindustan Petroleum Ltd., purchased on 1st July, 2016 a machine costing ` 60,000.
It purchased another machine on 1st January, 2017 costing ` 40,000. Further, a
machine was purchased on 1st October, 2017, for ` 20,000.

On 1st April, 2018 one - third of the machine installed on 1st July, 2016, became
obsolete and was sold for 76,000. Write up Machine Account assuming that
machinery was depreciated by fixed installment Method every year @10% per
annum.

What would be balance on Machinery Account on 1st April, 2019.

Q.3 A company depreciates its Machinery at 10% p.a. on the Reducing Balance Method.
On 1.4.18 the balance on the Machinery Account was ` 72,000. On 1.10.18, a
machine bought on 1.10.15 for ` 10,000 was sold for ` 6,000, while another
machine bought for ` 16,000 on 1.10.16 sold for ` 13,200. On 1.1.19 a new
machine was bought for ` 18,000 and installed at a cost of ` 2,000. Show the
Machinery Account for 2018-19 assuming the year ending to be 31st March.

11
 CA FOUNDATION - ACCOUNTANCY

Q.4 Laxmi maintains only one ledger account for all machineries. She purchased the
following machineries during 2015-2016 and 2016-2017.

Date of Purchase Amount `

01.04.2015 64,000
01.07.2015 38,000
01.10.2015 80,000
01.04.2016 86,000
31.03.2017 1,00,000

A machine purchased on 1st April, 2015 was burnt on 1st October, 2017. The
scrap value recovered was ` 4,000.

A machine purchased on 1st July, 2015 was sold for ` 60,000 on 31st March,
2019.
Depreciation is charged under the Straight Line Method @ 10% p.a. on 31.03.
every year. You are required to prepare machinery account for 4 years .

Q.5 The LG Transport company purchased 10 trucks at ` 45,00,000 each on 1st April
2014. On October 1st, 2016, one of the trucks is involved in an accident and
is completely destroyed and ` 27,00,000 is received from the insurance in full
settlement. On the same date another truck is purchased by the company for the
sum of ` 50,00,000. The company writes off 20% on the original cost per annum.
The company observe the calendar year as its financial year.

Give the motor truck account for two year ending 31 Dec, 2017.

Q.6 A Machine costing ` 6,00,000 is depreciated on straight line basis, assuming 10

years working life and Nil residual value, for three years. The estimate of remaining
useful life after third year was reassessed at 5 years.

Required
Calculate depreciation for the fourth year.

12
 CA FOUNDATION - ACCOUNTANCY

PART D – PAST EXAM

Q.1 X purchased a machinery on 1st January 2017 for ` 4,80,000 and spent ` 20,000
on its installation. On July 1, 2017 another machinery costing ` 2,00,000 was
purchased. On 1st July, 2018 the machinery purchased on 1st January, 2017 having
become scrapped and was sold for ` 2,90,000 and on the same date fresh machinery
was purchased for ` 5,00,000. Depreciation is provided annually on 31st December
at the rate of 10% p.a. on written down value. Prepare Machinery account for the
years 2017 and 2018.

Q.2 A Firm purchased an old Machinery for ` 37,000 on 1st January, 2015 and spent `
3,000 on its overhauling. On 1st July 2016, another machine was purchased for `
10,000. On 1 st July 2017, the machinery which was purchased on 1st January 2015,
was sold for ` 28,000 and the same day a new machinery costing ` 25,000 was
purchased. On 1 st July, 2018, the machine which was purchased on 1st July, 2016
was sold for ` 2,000. Depreciation is charged @ 10% per annum on straight line
method. The firm changed the method and adopted diminishing balance method
with effect from 1st January, 2016 and the rate was increased to 15% per annum.
The books are closed on 31st December every year. Prepare Machinery account for
four years from 1 s t January, 2015.

Q.3 A Plant & Machinery costing ` 10,00,000 is depreciated on straight line assuming
10 year working life and zero residual value, for four years. At the end of the fourth
year, the machinery was revalued upwards by ` 40,000. The remaining useful life
was reassessed at 8 year. Calculate Depreciation for the fifth year.

13
 CA FOUNDATION - ACCOUNTANCY

PART E - OBJECTIVE

Q1. State with reasons whether the following statement is True or False:

1. Depreciation is a non-cash expense and does not result in any cash flow.
Ans. True – Depreciation is a non-cash expense unlike normal expenditure.
Depreciation is debited to expense and reduced from fixed assets. So it does
not affect cash.

2. Depreciation is a charge against profit.

Ans. True – Depreciation is to be provided irrespective whether there is profit or
Loss. So it is a charge and not appropriation.

3. Cost of asset – Accumulated depreciation = Depreciable amount.

Ans. False – Cost – Accumulated Depreciation = WDV of Asset whereas Depreciable
Amount = Cost of Asset – scrap / Salvage value.

4. X & Co. did not provide any depreciation on machinery as its market value is
higher than cost of purchase.
Ans. False – Machinery is held with intention of being used for producing goods and
services and not held for resale so depreciation is to be provided irrespective of
market value.

5. Depreciable amount refers to difference between historical cost and market

value of an asset.
Ans. False – Cost – Accumulated Depreciation = WDV of Asset whereas Depreciable
Amount = Cost of Asset – scrap / Salvage value.

6. Depreciation is a process of allocation of cost of fixed assets.

Ans. True – It is allocating cost of fixed asset over estimated useful life of asset.

14
 CA FOUNDATION - ACCOUNTANCY

7. There is no difference between WDV method and diminishing balance method

of depreciation.
Ans. True – Both methods are same as depreciation is calculated on written down
value (Diminishing balance) of asset.

8. Higher depreciation affects cash profit of business.

Ans. False – Depreciation in non-cash expense and so does not affect cash profit.

9. Expression depreciation is to be charged at 10% and 10% p.a. on fixed asset

has same meaning.
Ans. False – 10% p.a. means depreciation is to be calculated from date of purchase
to year end (Pro rata) i.e. time of use is to be considered whereas 10% means
depreciation is to be charged full 10% irrespective of period of use of asset
during the year i.e. time factor not to be considered.

10. Fixed asset are stated in Balance sheet at their market value.
Ans. False – Fixed asset are held for producing goods and services and not for
resale. So they are stated in balance sheet at cost less depreciation.

11. Reducing balance method of depreciation is followed to have uniform charge

for depreciation and repairs together.
Ans. True – Initially when asset is purchased under reducing balance method
depreciation is high and repair cost is low since asset is new. In latter year,
depreciation goes on reducing and repair cost increases. So there is uniform
charge on P&L A/c.

12. Depreciation is an amortised expenditure.

Ans. True – Amortisation is writing off cost of asset to P&L A/c. So depreciation is
amortised expenditure.

13. Depreciation ensures sufficient cash for asset replacement.

Ans. True – Depreciation debited to P&L A/c in non-cash expense which ensures
that certain amount is kept aside from profit for asset replacement.

14. Providing depreciation in accounts reduces profit available for dividends /

owners.

15
 CA FOUNDATION - ACCOUNTANCY

Ans. True – Though depreciation is non-cash expenditure but it has to be deducted

from profit to ensure payment of dividend or owner as per law.

15. Number of production or similar units expected to be obtained from use of

asset by an enterprise is called production life.
Ans. False – It is called useful life of asset.

Q2. Fill in the blanks:

1. Depreciation is related to ________ asset.

2. Depletion method is used to charge depreciation on __________ asset.

3. In case of upward revaluation of asset which is for first time revalued account to be
credited is ______________.

4. Depreciation on intangible asset is known as ___________.

5. Original cost of asset was ` 1,00,000, life 5 years, salvage value ` 5,000. So rate of
depreciation is _______.

Q.3 Multiple Choice Questions

1. Original cost = ` 12,60,000; Salvage value = Nil; Useful life = 6 years.

Depreciation for the first year under sum of years digits method will be
(a) ` 3,60,000 (b) ` 1,20,000 (c) ` 1,80,000

2. Obsolescence of a depreciable asset may be caused by: I. Technological

changes. II. Improvement in production method. III. Change in market demand
for the product or service output. IV. Legal or other restrictions.
(a) Only (I) above (b) Both (I) and (II) above
(c) All (I), (II), (III) and (IV) above

3. The number of production of similar units expected to be obtained from the

use of an asset by an enterprise is called as
(a) Unit life (b) Useful life (c) Production life

16
 CA FOUNDATION - ACCOUNTANCY

4. If a concern proposes to discontinue its business from March 2015 and decides
to dispose of all its plants within a period of 4 months, the Balance Sheet as
on March 31, 2015 should indicate the plants at their
(a) Historical cost (b) Net realizable value
(c) Costless depreciation

5. In the case of downward revaluation of a plant which is for the first time
revalued, the account to be debited is
(a) Plant account (b) Revaluation Reserve
(c) Profit & Loss account

6. The portion of the acquisition cost of the tangible asset, yet to be allocated is
known as
(a) Written down value (b) Accumulated value
(c) Realisable value

7. The main objective of providing depreciation is to

(a) Create secret reserve
(b) Reduce the book value of assets
(c) Allocate cost of the assets

8. Original cost of a machine was `25,20,000 salvage value was `1,20,000, useful
life was 6 years. Annual depreciation under Straight Line Method
(a) ` 4,20,000 (b) ` 4,00,000 (c) ` 3,00,000

9. The cost of a machine is ` 20,00,000. Two years later the book value is
` 10,00,000. The Straight-line percentage depreciation is
(a) 50% (b) 33-1/3% (c) 25%

10. Original cost `13,00,000, Salvage value `40,000, Useful life 6 years. Depreciation
for the first year under sum-of-years digit methods will be
(a)
` 60,000 (b) ` 1,20,000 (c) ` 3,60,000

11. Which of the following assets does not depreciate?

(a) Machinery and equipment (b) Patents
(c)
Land

17
 CA FOUNDATION - ACCOUNTANCY

12. A company purchased a machinery on April 01, 2010, for ` 15,00,000. It is

estimated that the machinery will have a useful life of 5 years after which it
will have no salvage value. The depreciation charged for the year 2014 - 15
was
(a)
` 5,00,00 (b) ` 4,00,000 (c) ` 3,00,000

13. If the equipment account has a balance of ` 22,50,000 and the accumulated
depreciation account has a balance of ` 14,00,000, the book value of the
equipment is
(a)
` 36,50,000 (b) ` 8,50,000 (c) ` 14,00,000

14. A car is acquired on instaIment basis, the cash price of the car being ` 3,00,000.
On 1.1.2006, the company acquired the car for ` 3,50,000 on instaIment basis
and paid ` 1,50,000 as down payment. During 2006, one instaIment of ` 50,000
(incIuding `15,000 interest) was paid. The amount of depreciation for the year
2006 @ 10% on SLM is :
(a)
` 35,000 (b) ` 30,000
(c) ` 20,000 (d) ` 18,500

15. A machinery was purchased on 1.1.2006. It was deIivered on 1.4.2006. The

instaIIation was compIeted on 1.7.2006. The triaI run was compIeted on
30.9.2006 and was made avaiIabIe for use on 1.10.2006. The actuaI utiIisation
started from 1.12.2006. The effective period for caIcuIation of depreciation for
the year 2006 is :
(a) 10 months (b) 9 months
(c) 1 month (d) 3 months

16. The vaIue of furniture on 1st ApriI, 2008 is `80,000. Furniture purchased during
the year was `40,000. During the year some furniture was soId at ` 15,000 and
a Ioss of ` 5,000 occurred. The vaIue of furniture on 31st March, 2009 was
` 70,000.
Depreciation charged for the year 2008-09 wiII be
(a) ` 50,000 (b) ` 20,000
(c) ` 30,000 (d) ` 4,000

18
 CA FOUNDATION - ACCOUNTANCY

17. FoIIowing data pertaining to B Iimited are avaiIabIe:

Cost of secondhand pIant ` 1,80,000
Cost of repairing the pIant ` 20,000
Wages paid for instaIIation of the pIant ` 5,000
Fire insurance premium paid for the pIant ` 2,000

The amount to be debited to pIant account wiII be:

(a) ` 1,80,000 (b) ` 2,00,000 (c) ` 2,05,000 (d) ` 2,07,000

18. If the rate of depreciation is same then the amount of depreciation under
Straight Line Method vis-a-vis Written Down VaIue Method wiII be:
(a) EquaI in aII years
(b) EquaI in first year but higher in subsequent years.
(c) EquaI in the first year but Iower in subsequent years.
(d) Lower in the first year but equaI in the first year but equaI subsequent
years.

Answer
Fill in the blanks

1. Fixed
2. wasting
3. revaluation reserve.
4. Amortisation.
5. 19%.

Multiple Choice Questions:

1. (a) 6. (a) 11. (c) 16. (c)
2. (c) 7. (c) 12. (c) 17. (c)
3. (b) 8. (b) 13. (b) 18. (b)
4. (b) 9. (c) 14. (b)
5. (c) 10. (c) 15. (d)

19