Skip to content

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

Sharma Traders bought machinery on 1 April 2022 for ₹5,00,000 and charges depreciation at 20% p.a. on the written down value. What is the book value of the machinery on 31 March 2024?

The book value on 31 March 2024 is ₹3,20,000. Depreciation of 20% on the written down value gives ₹1,00,000 in the first year and ₹80,000 in the second, so ₹5,00,000 reduces to ₹4,00,000 and then ₹3,20,000. Straight line would wrongly give ₹3,00,000.

  1. A₹3,00,000
  2. B₹3,20,000Correct
  3. C₹3,60,000
  4. D₹4,00,000

Explanation

Year 1 depreciation = 20% of 5,00,000 = 1,00,000, leaving 4,00,000. Year 2 depreciation = 20% of 4,00,000 = 80,000, leaving 3,20,000. ₹3,00,000 results from straight line depreciation of 1,00,000 for two years.

Did you get it right without looking?

One question tells you little. A timed set on Depreciation (Straight Line and Diminishing Balance Methods) shows your real accuracy, how long you take and where you lose marks.

Practise Depreciation (Straight Line and Diminishing Balance Methods)Free diagnostic mock

More Depreciation (Straight Line and Diminishing Balance Methods) questions