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?
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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.
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