CMA Intermediate · Financial Accounting · Accounting Fundamentals
Gupta Textiles bought a machine on 1 April 2023 for Rs 5,00,000. Its estimated residual value is Rs 50,000 and useful life is 5 years. The firm uses the straight line method. What is the book value of the machine on 31 March 2026?
The book value is Rs 2,30,000. Annual straight line depreciation is (5,00,000 less 50,000 residual) divided by 5, which is Rs 90,000. Over three years this totals Rs 2,70,000, which deducted from the cost of Rs 5,00,000 leaves Rs 2,30,000.
- ARs 2,30,000Correct
- BRs 2,00,000
- CRs 2,50,000
- DRs 1,50,000
Explanation
Annual depreciation = (5,00,000 - 50,000)/5 = Rs 90,000. Three years of depreciation = Rs 2,70,000. Book value = 5,00,000 - 2,70,000 = Rs 2,30,000. Rs 2,00,000 results from ignoring the residual value (Rs 1,00,000 x 3 deducted).
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