Skip to content

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

On 1 April, Raman Engineering Ltd. bought a machine for Rs 12,00,000. Management expects it to be used for 10 years with no residual value. On 31 March, at year end, its replacement cost is Rs 15,00,000 and the company does not revalue assets. Using the historical cost basis, as described in the Framework, at what amount is the machine carried at the end of the first year (straight-line depreciation)?

The machine is carried at Rs 10,80,000. Under historical cost, the asset stays at its original cost of Rs 12,00,000 less one year's straight-line depreciation of Rs 1,20,000. The higher replacement cost is ignored because the company does not revalue assets.

  1. ARs 10,80,000Correct
  2. BRs 13,50,000
  3. CRs 12,00,000
  4. DRs 15,00,000

Explanation

Historical cost carries the asset at original cost less accumulated depreciation. Annual depreciation = 12,00,000 / 10 = 1,20,000. Carrying amount = 12,00,000 - 1,20,000 = 10,80,000. Rs 13,50,000 wrongly applies depreciation to replacement cost (15,00,000 less 1,50,000).

Did you get it right without looking?

One question tells you little. A timed set on Framework for Preparation and Presentation of Financial Statements shows your real accuracy, how long you take and where you lose marks.

Practise Framework for Preparation and Presentation of Financial StatementsFree diagnostic mock

More Framework for Preparation and Presentation of Financial Statements questions