Question

Rubal Ltd. purchased a machine costing Rs. 3,00,000 on 1st April, 2000 and an additional machine on 1st Oct., 2000 costing Rs. 2,00,000 and on 1 July, 2001 costing Rs. 1,00,000.

On 1st Jan. 2002, one third of Machine purchased on 1st April, 2000 was sold at Rs. 30,000.

Prepare machine A/c for 3 years, it is given that depreciation is charged @ 10% p.a. on straight line method.

Please show method of this sum

Answer 1

Answer:

Hey mate here is your answer...

Various methods of depreciation are generally classified as follows:

1. 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.

(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.

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Answer 2

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