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

Kalyan Ltd. bought equipment on 1 July 2023 for Rs 3,60,000 with no scrap value and a life of 10 years. Depreciation is charged by SLM on a time basis, and the books close on 31 March. Depreciation for the year ended 31 March 2024 is:

Depreciation for the first year is Rs 27,000. The full-year SLM charge is Rs 36,000, but the machine was used for only nine months from 1 July to 31 March, so the charge is apportioned as 9/12 of Rs 36,000.

  1. ARs 36,000
  2. BRs 27,000Correct
  3. CRs 18,000
  4. DRs 30,000

Explanation

Annual depreciation = 3,60,000/10 = Rs 36,000. The asset was used from 1 July to 31 March, which is 9 months, so depreciation = 36,000 x 9/12 = Rs 27,000. Rs 36,000 ignores the part-year.

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