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

Kapoor Enterprises purchased a machine on 1 July 2023 for Rs 3,60,000 and incurred Rs 40,000 on installation. Depreciation is charged at 15% per annum on the written down value method, with the accounting year ending 31 March. What is the depreciation for the year ended 31 March 2024?

Depreciation is Rs 45,000. Installation charges are capitalised, making the cost Rs 4,00,000. At 15% for the nine months from 1 July 2023 to 31 March 2024, the charge is 4,00,000 x 15% x 9/12. Using the full year or excluding installation gives wrong figures.

  1. ARs 60,000
  2. BRs 45,000Correct
  3. CRs 54,000
  4. DRs 40,000

Explanation

Installation cost is capitalised, so cost = 3,60,000 + 40,000 = Rs 4,00,000. Depreciation for 9 months (July to March) = 4,00,000 x 15% x 9/12 = Rs 45,000. Option A ignores the part-year period, and option C excludes installation cost (3,60,000 x 15%).

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