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CA Foundation · Accounting · Depreciation and Amortisation

Ravi & Co. bought a machine on 1 April 2022 for ₹10,00,000, with a residual value of ₹1,00,000 and a useful life of 9 years, and uses the straight-line method. On 1 April 2024, after review, the remaining useful life is revised to 5 years from that date (residual value unchanged). What is the depreciation charge for the year ended 31 March 2025?

The charge is ₹1,40,000. Depreciation for two years at ₹1,00,000 leaves a book value of ₹8,00,000. Under a change in estimate applied prospectively, the book value less residual value of ₹1,00,000 is spread over the revised remaining life of 5 years.

  1. A₹1,80,000
  2. B₹1,00,000
  3. C₹1,60,000Correct
  4. D₹1,40,000

Explanation

Annual depreciation for first two years = (10,00,000 - 1,00,000)/9 = 1,00,000, so 2 years = 2,00,000 and book value at 1 April 2024 = 8,00,000. Revised depreciation = (8,00,000 - 1,00,000)/5 = 1,40,000. Hence the answer is ₹1,40,000, applied prospectively.

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