CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Cycle
Vikram started a business on 1 April with machinery costing Rs 1,00,000. On 1 October of the same year he bought more machinery for Rs 60,000. Depreciation is charged at 10% p.a. on the straight-line basis on cost, with time apportionment. Rs 5,000 of the 1 October purchase cost was freight and installation, included in the Rs 60,000. The year ends 31 March. What is the book value of machinery in the Balance Sheet?
The book value is Rs 1,47,000. Total cost is Rs 1,60,000 because freight and installation are capitalised and already included in the Rs 60,000. Depreciation is Rs 10,000 on the old machinery and Rs 3,000 for six months on the new, totalling Rs 13,000. Cost less depreciation gives Rs 1,47,000.
- ARs 1,47,000Correct
- BRs 1,50,000
- CRs 1,44,000
- DRs 1,53,000
Explanation
The Rs 60,000 already includes freight and installation, which are capitalised, so the cost is Rs 1,60,000. Depreciation = 10% of 1,00,000 = 10,000, plus 10% of 60,000 x 6/12 = 3,000, total 13,000. Book value = 1,60,000 - 13,000 = Rs 1,47,000. Rs 1,50,000 results from charging a full year's depreciation on the new asset without time apportionment, and Rs 1,44,000 from adding the freight again on top of the Rs 60,000.
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