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CS Executive · Corporate Accounting and Financial Management · Introduction to Accounting

Kaveri Ltd bought a machine on 1 April 2024 for Rs 10,00,000 with an estimated residual value of Rs 1,00,000 and a useful life of 9 years, using the straight-line method. On 1 April 2026 the management revises the remaining useful life to 5 years (from that date) and the residual value to Rs 50,000. What is the depreciation for the year ended 31 March 2027?

Depreciation for 2026-27 is Rs 1,50,000. After two years at Rs 1,00,000 each, the carrying amount is Rs 8,00,000. The change in estimates is applied prospectively, so the depreciable amount of Rs 7,50,000 after the new residual value of Rs 50,000 is spread over the remaining 5 years.

  1. ARs 1,00,000
  2. BRs 1,50,000
  3. CRs 1,60,000Correct
  4. DRs 1,90,000

Explanation

Annual depreciation for first two years = (10,00,000 - 1,00,000)/9 = Rs 1,00,000, so accumulated depreciation is Rs 2,00,000 and carrying amount is Rs 8,00,000. The revision is a change in estimate, applied prospectively: (8,00,000 - 50,000)/5 = Rs 1,50,000. Check: 7,50,000/5 = 1,50,000. Option Rs 1,60,000 is a distractor from dividing 8,00,000 by 5 without deducting residual value, while Rs 1,50,000 is correct only if... recomputing: the correct value is 1,50,000.

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