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

Gupta & Co. purchased furniture on 1 July 2024 for Rs 1,20,000. Depreciation is at 10% per annum straight line on original cost, charged on a time basis from the date of purchase. The accounting year ends on 31 March. Depreciation to be charged for the year ended 31 March 2025 is:

Depreciation for the year is Rs 9,000. The annual charge at 10% of Rs 1,20,000 is Rs 12,000, but the furniture was used only nine months from 1 July to 31 March, so the charge is pro-rated to 9/12, giving Rs 9,000.

  1. ARs 12,000
  2. BRs 10,000
  3. CRs 9,000Correct
  4. DRs 6,000

Explanation

Annual depreciation = 10% of 1,20,000 = 12,000. The asset was used for 9 months (July to March), so 12,000 x 9/12 = Rs 9,000. Rs 12,000 ignores the part-year usage.

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