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CA Foundation · Accounting · Depreciation and Amortisation

Arora Traders charges depreciation at 10% per annum on the straight-line basis, calculated on a monthly (pro-rata) basis. On 1 October 2023 it bought a machine for ₹2,40,000 and spent ₹10,000 on its installation. What is the depreciation for the year ended 31 March 2024?

Depreciation is ₹12,500. Installation charges are capitalised, so the cost is ₹2,50,000. Ten percent gives ₹25,000 for a full year, and the machine was used for only six months, so half of that, ₹12,500, is charged.

  1. A₹12,500Correct
  2. B₹25,000
  3. C₹24,000
  4. D₹13,000

Explanation

Installation cost is part of the asset's cost, so cost is 2,40,000 + 10,000 = ₹2,50,000. Annual depreciation is 10% of 2,50,000 = ₹25,000. For 6 months (October to March) it is 25,000 × 6/12 = ₹12,500. Option ₹25,000 ignores the part-year, and ₹12,000 would be on cost excluding installation.

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