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

Sharma Traders bought machinery for Rs 2,00,000 on 1 April 2022 and depreciates it at 10% per annum on diminishing balance. What is the book value of the machinery on 31 March 2024?

The book value on 31 March 2024 is Rs 1,62,000. Depreciation for the first year is Rs 20,000, leaving Rs 1,80,000, and for the second year is 10% of that, Rs 18,000, since the rate applies to the reducing balance and not original cost.

  1. ARs 1,60,000
  2. BRs 1,62,000Correct
  3. CRs 1,80,000
  4. DRs 1,58,000

Explanation

Year 1 depreciation = 10% of 2,00,000 = 20,000, so WDV = 1,80,000. Year 2 depreciation = 10% of 1,80,000 = 18,000, so WDV = 1,62,000. Rs 1,60,000 wrongly uses straight line on cost.

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