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CMA Foundation · Fundamentals of Financial and Cost Accounting · Depreciation (Straight Line and Diminishing Balance Methods)

A machine costing Rs 2,00,000 is depreciated by SLM at 10% per annum on original cost. The accumulated depreciation at the end of the third year, and the book value then, are respectively:

Accumulated depreciation is Rs 60,000 and book value is Rs 1,40,000. SLM charges a fixed Rs 20,000 yearly, being 10% of original cost, so three years total Rs 60,000, which is deducted from the cost of Rs 2,00,000.

  1. ARs 60,000 and Rs 1,40,000Correct
  2. BRs 54,200 and Rs 1,45,800
  3. CRs 20,000 and Rs 1,80,000
  4. DRs 60,000 and Rs 1,60,000

Explanation

Annual depreciation = 10% of 2,00,000 = Rs 20,000. After 3 years accumulated depreciation = 60,000, so book value = 2,00,000 - 60,000 = Rs 1,40,000. Rs 54,200 would come from applying the rate on a reducing balance.

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