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CMA Foundation · Fundamentals of Financial and Cost Accounting · Financial Statements of Sole Proprietorship

Ravi Traders, a sole proprietorship, bought machinery on 1 April 2024 for Rs 5,00,000 and charges depreciation at 10% per annum on the straight line method with no residual value. In the final accounts for the year ended 31 March 2026, at what amount will the machinery appear in the Balance Sheet?

The machinery appears at Rs 4,00,000. Straight line depreciation is charged at 10% of the original cost of Rs 5,00,000, which is Rs 50,000 a year, and two years of depreciation total Rs 1,00,000, leaving a written down value of Rs 4,00,000.

  1. ARs 4,00,000Correct
  2. BRs 4,50,000
  3. CRs 3,50,000
  4. DRs 4,05,000

Explanation

Straight line depreciation is 10% of the original cost, Rs 50,000 each year. Over two years it is Rs 1,00,000, so book value is 5,00,000 - 1,00,000 = Rs 4,00,000. Rs 4,05,000 results from using the reducing balance method (4,50,000 less 45,000), which is not the method stated.

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