CMA Intermediate · Cost Accounting · Contract Costing
Shree Infra Ltd. has a contract with plant costing ₹8,00,000 at the start of the year. Plant is depreciated at 10% p.a. on cost. The plant was used on the site for 9 months of the year and then returned to the works. What depreciation is charged to the Contract Account?
Depreciation charged is ₹60,000, because 10% of ₹8,00,000 is ₹80,000 for a full year, and the plant was on the contract for only nine of twelve months, so three-fourths of the annual charge is applied.
- A₹80,000
- B₹60,000Correct
- C₹6,000
- D₹72,000
Explanation
Depreciation = 8,00,000 × 10% × 9/12 = ₹60,000. Charging ₹80,000 ignores the period of use. ₹72,000 wrongly takes 90% of the full year charge.
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