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

Kaveri Traders purchased machinery on 1 April 2023 for ₹4,00,000 and charges depreciation at 10% p.a. on the diminishing balance method. What is the book value at 31 March 2025?

The book value is ₹3,24,000. Under the diminishing balance method, first-year depreciation of ₹40,000 leaves ₹3,60,000, and second-year depreciation of 10% on that balance is ₹36,000, leaving ₹3,24,000.

  1. A₹3,20,000
  2. B₹3,60,000
  3. C₹3,24,000Correct
  4. D₹3,16,000

Explanation

Year 1 depreciation = 40,000, leaving 3,60,000. Year 2 depreciation = 10% of 3,60,000 = 36,000, leaving ₹3,24,000. Option ₹3,20,000 applies 10% on original cost both years (straight line).

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