Question

The Company purchases machine on 1-4-2010 for Rs. 50,00,000. Residual value is expected to be Rs. 5,00,000. Company charges depreciation on Written Down Value Method. The rate of depreciation is 15%. Company sale the machine on 30-09-2011 for Rs. 42,00,000. What will be Profit or Loss on sale of machine during financial year 2011-12?

Answer 1

Answer:

Total cost of machinery = Rs 1,50,000 + Rs 50,000 = 2,00,000

Calculation of depreciation

Depreciation for 1st year

2,00,000@20% = 40,000

Depreciation for 2nd Year

160000(2,00,000-40,000)@20% = 32,000

Depreciation for 3rd year

1,28,000(1,60,000-32,000)@20% = 25000

Depreciation for 4th year

1,02,000(1,28,000-25000)@20% = 20,480

Which implies that the residual value of the asset at the end of 4th year is Rs 81920 (1,02,000-20,480)

Hence the estimated useful life of the asset is 4 years.

Thanks