On 1st July, 2008 a company purchased a machine for Rs 3,90,000 and spent Rs 10,000 on its installation. It decided to provide depreciation @ 15% per annum, using written down value method. On 30th November, 2011 the machine was dismantled at a cost of Rs 5,000 and then sold for Rs 1,00,000.
Answers
Answer:
Straight Line Method:
This method assumes that depreciation is a function of time rather than use. This method is based on the assumption that each accounting period receives same a benefits from using the assets. It allocates an equal amount of depreciation in each accounting periods of the service life of the assets. Therefore, it is called Straight Line Method.
The formula for calculating depreciation charge for each accounting period is:
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Advantages:
(i) It is simple in use.
(ii) It realistically matches cost and revenue and determine income of each period easily.
(iii) There is no change either in the rate or the amount of depreciation over the useful life of the assets. Such a procedure provides for improved comparability.
Disadvantages:
(i) It ignores the cost of capital.
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(ii) It is based on the wrong assumption of equal utility of the assets during the useful life.
(iii) It is also wrong to consider depreciation as a function of time rather than use.
(iv) The maintenance of asset is generally costly in the later years with the result that deductions from the revenue would be greater in later years than in the earlier years.
Explanation:
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Explanation:
On 1st December, 2011 the company acquired and put into operation a new machine at a total cost of Rs 7,60,000. Depreciation was provided on the new machine on the same basis as had been used in the case of the earlier machine. The company closes its books of account every year on 31st March.
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Prepare Machinery Account and Depreciation Account for four accounting years ended 31st March. 2012: