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CMA Intermediate · Financial Accounting · Final Accounts of Commercial Organisations

Iyer Brothers' trial balance shows machinery of Rs 5,00,000 (purchased 1 April two years ago) with depreciation charged at 10% on the written down value. The accumulated depreciation is not separately maintained. During the current year, no purchase or sale took place. What is the depreciation for the current year and the machinery's book value at year end, assuming the year-one depreciation was charged correctly?

Depreciation is Rs 45,000 and the closing book value is Rs 4,05,000. Under the written down value method, the first year charge of Rs 50,000 leaves Rs 4,50,000, and ten percent of this opening value gives the current year charge.

  1. ARs 45,000; Rs 4,05,000Correct
  2. BRs 50,000; Rs 4,00,000
  3. CRs 45,000; Rs 4,50,000
  4. DRs 40,500; Rs 4,05,000

Explanation

Year 1 depreciation = 50,000, WDV = 4,50,000. Year 2 depreciation = 10% of 4,50,000 = 45,000, WDV = 4,05,000. But the purchase was two years ago and this is the current (second) year, so the opening value is 4,50,000. Rs 50,000 uses the original cost, which is the straight-line base.

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