CSEET · Fundamentals of Accounting · Depreciation and Amortization
Sundaram Ltd acquired a franchise on 1 April 2024 for ₹4,80,000, to be amortized on the straight-line method over 8 years with nil residual value. What is the book value of the franchise on 31 March 2027?
The book value is ₹3,00,000. Yearly amortization is ₹4,80,000 divided by 8, which is ₹60,000. By 31 March 2027 three full years have passed, so ₹1,80,000 has been written off, leaving ₹3,00,000 as the carrying amount.
- A₹3,00,000Correct
- B₹3,60,000
- C₹2,40,000
- D₹3,30,000
Explanation
Annual amortization = 4,80,000 / 8 = ₹60,000. Three years (FY 2024-25, 2025-26, 2026-27) give ₹1,80,000. Book value = 4,80,000 - 1,80,000 = ₹3,00,000. Charging only two years would give ₹3,60,000.
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