Question

Question 1.
Calculate the Rate of Depreciation under Straight Line Method (SLM) from the following:
Purchased a second-hand machine for ₹ 96,000, spent ₹ 24,000 on its cartage, repairs and installation, estimated useful life of machine 4 years. Estimated residual value ₹ 72,000.

Answer 1

Answer:

1800 rs repair and installation estimated useful life of machine

Answer 2

The rate of depreciation is 10%

Explanation:

• Depreciation is the non- cash expense which reduce or decrease the asset value as a consequence if wear and tear, obsolescence over the useful life of the asset.

• The rate of depreciation is computed as:

1. First, we need to find the depreciation amount as by using the SLM :

Depreciation amount = Machine Cost - Residual value of machine / Useful life of asset

where

Machine cost is Rs 120,000

Residual value of machine is Rs 72,000

Useful life of asset or machine is 4 years

• Putting the values above:

= $120,000 - Rs 72,000 / 4

= Rs 48,000 / 4

= Rs 12,000

2. Now computing the rate of depreciation as:

Rate of depreciation = Depreciation amount / Cost of machine × 100

= Rs 12,000 / Rs 120,000 × 100

= 10%

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