CA Foundation · Accounting · Final Accounts of Sole Proprietors
Sundaram Industries bought a machine for Rs 2,00,000 on 1 April. It paid freight of Rs 10,000 and wages of Rs 15,000 for installing the machine. It also paid Rs 8,000 during the year for routine repairs. Depreciation is charged at 10% per annum on the straight-line method. What is the depreciation for the year?
Depreciation is Rs 22,500. The machine's cost includes the purchase price plus freight and installation wages, giving Rs 2,25,000, because these are needed to bring it into use. Routine repairs of Rs 8,000 are a revenue expense and are excluded. Ten percent of Rs 2,25,000 is Rs 22,500.
- ARs 22,500Correct
- BRs 20,000
- CRs 23,300
- DRs 21,000
Explanation
Freight and installation wages needed to bring the machine into working condition are capital expenditure and form part of its cost. Routine repairs are revenue expenditure and are not capitalised. Cost = 2,00,000 + 10,000 + 15,000 = 2,25,000. Depreciation = 10% of 2,25,000 = Rs 22,500. Rs 23,300 wrongly includes the repairs in the cost.
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