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IAI Actuarial Core Principles · Business Finance · Construction and features of company accounts and reports

Vihaan Engineering Ltd bought a machine on 1 April for Rs 12,00,000 and depreciates it straight-line over 10 years with nil residual value. At the end of the third year, the machine's carrying amount in the statement of financial position is:

The carrying amount is Rs 8,40,000. Annual straight-line depreciation is Rs 1,20,000, so three years give accumulated depreciation of Rs 3,60,000, which is deducted from the cost of Rs 12,00,000. Reporting the accumulated depreciation itself would be a mistake.

  1. ARs 8,40,000Correct
  2. BRs 3,60,000
  3. CRs 9,60,000
  4. DRs 7,20,000
  5. Rs 8,00,000

Explanation

Annual depreciation = 12,00,000/10 = 1,20,000. After three years accumulated depreciation is 3,60,000. Carrying amount = 12,00,000 - 3,60,000 = 8,40,000. Rs 3,60,000 is the accumulated depreciation alone, not the carrying amount.

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