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CA Intermediate · Advanced Accounting · Framework for Preparation and Presentation of Financial Statements

Kaveri Textiles Ltd. purchased a machine for Rs 12,00,000 on 1 April 2024 and records it at cost less accumulated depreciation each year. Its current replacement cost at 31 March 2026 is Rs 15,00,000. Depreciation is 10% p.a. on straight-line basis with no residual value. Which measurement basis is the company applying, and what is the carrying amount at 31 March 2026?

The company uses the historical cost basis, and the carrying amount is Rs 9,60,000. Depreciation is Rs 1,20,000 per year, so two years total Rs 2,40,000, which is deducted from the cost of Rs 12,00,000. Replacement cost is irrelevant under historical cost measurement.

  1. AHistorical cost; Rs 9,60,000Correct
  2. BCurrent cost; Rs 12,00,000
  3. CHistorical cost; Rs 10,80,000
  4. DCurrent cost; Rs 15,00,000

Explanation

Recording at cost less accumulated depreciation is the historical cost basis. Annual depreciation is 1,20,000; for two years it is 2,40,000, so carrying amount is 12,00,000 - 2,40,000 = 9,60,000. Option Rs 10,80,000 deducts only one year's depreciation. Replacement cost is ignored under historical cost.

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