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CMA Intermediate · Financial Accounting · Accounting Fundamentals

Kavita Enterprises buys machinery on 1 July 2025 for Rs 3,00,000 and spends Rs 20,000 on installation. On 1 January 2026 it buys another machine for Rs 1,20,000. Depreciation is charged at 10% p.a. on the straight-line method on cost, pro rata by months, for the year ended 31 March 2026. There was also a one-time Rs 5,000 repair on the first machine, correctly expensed. What total depreciation should be charged for the year?

Total depreciation is Rs 27,000. Installation cost is capitalised, so the first machine costs Rs 3,20,000 and is depreciated for nine months, giving Rs 24,000. The second machine of Rs 1,20,000 is depreciated for three months, giving Rs 3,000. The repair is revenue expense and is excluded.

  1. ARs 27,000
  2. BRs 26,000Correct
  3. CRs 31,000
  4. DRs 34,000

Explanation

First machine cost = 3,00,000 + 20,000 installation = 3,20,000. Depreciation = 3,20,000 x 10% x 9/12 = 24,000. Second: 1,20,000 x 10% x 3/12 = 3,000. Total = 27,000. The correct total is therefore Rs 27,000, not Rs 26,000.

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