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

Sharma Textiles bought a machine for Rs 5,00,000 on 1 April 2023. Its estimated residual value is Rs 50,000 and life is 5 years. Using the straight line method, what is the book value of the machine at 31 March 2025?

The book value is Rs 3,20,000. Annual straight line depreciation is (5,00,000 minus 50,000) divided by 5, which is Rs 90,000. Over two years it totals Rs 1,80,000, which deducted from the cost of Rs 5,00,000 leaves Rs 3,20,000.

  1. ARs 3,20,000Correct
  2. BRs 3,00,000
  3. CRs 3,50,000
  4. DRs 3,60,000

Explanation

Annual depreciation = (5,00,000 - 50,000)/5 = Rs 90,000. After two years accumulated depreciation = Rs 1,80,000. Book value = 5,00,000 - 1,80,000 = Rs 3,20,000. Rs 3,00,000 wrongly ignores the residual value (Rs 1,00,000 per year).

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