CA Foundation · Accounting · Depreciation and Amortisation
Gupta Enterprises purchased a machine on 1 April 2022 for ₹8,00,000 and spent ₹40,000 on its installation. Estimated useful life is 10 years and estimated residual value is ₹60,000. Depreciation is charged on the straight-line method. What is the annual depreciation?
Annual depreciation is ₹78,000. The asset's cost includes installation, so it is ₹8,40,000. Deducting the residual value of ₹60,000 leaves ₹7,80,000, which divided by 10 years gives ₹78,000 each year under the straight-line method.
- A₹78,000Correct
- B₹74,000
- C₹80,000
- D₹84,000
Explanation
Cost includes installation: 8,00,000 + 40,000 = 8,40,000. Depreciable amount = 8,40,000 − 60,000 = 7,80,000. Annual depreciation = 7,80,000 ÷ 10 = ₹78,000. Ignoring installation gives ₹74,000, which is wrong because installation is part of the asset's cost.
Did you get it right without looking?
One question tells you little. A timed set on Depreciation and Amortisation shows your real accuracy, how long you take and where you lose marks.
More Depreciation and Amortisation questions
- Rajesh Enterprises had machinery with a book value of ₹3,00,000 (cost ₹5,00,000, accumulated depreciation ₹2,00,000). On 31 March 2024 it wa…
- Which of the following assets is NOT normally subjected to depreciation?
- Kavya Media Ltd. acquired a licence on 1 October 2023 for ₹14,40,000, available for use from that date, with a useful life of 6 years and ni…
- Under the straight-line method, an asset costing ₹1,20,000 with a scrap value of ₹20,000 and a life of 10 years is used for 4 years and then…
- Under AS 26, how should the amortisation method for an intangible asset be selected when the pattern of future economic benefits cannot be d…
- Rao Enterprises bought equipment on 1 April 2021 for ₹5,00,000 and used straight-line depreciation at 20% on cost. On 31 March 2023 it chang…