Tag: straight line method

Questions Related to straight line method

On the basis of the information given below answer the following question.
In the year 2014-15 C Ltd. purchased a new machine and made the following payments in relation to it:-

Particulars Rs
Cost as per supplier's listAgreed discountDelivery chargedErection chargesAnnual maintenance chargesAdditional maintenance chargesAdditional component to increase capacity of machineAnnual insurance premium 5,20,00050,00010,00020,00030,00040,0005,000

If depreciation is provided @ 10 %  p.a, SLM depreciation for 3rd year will be:-

elements of book keeping and accountancy accounting for depreciation need and methods of charging depreciation using straight line method straight line method straight line method and written down method

  1. Rs$54,000$

  2. Rs$54,5000$

  3. $47,000$

  4. $55,000$

Show answer
Correct Option: A
Explanation:
Calculation of cost of the machinery:- 
Cost as per supplier                                                                        =  5,20,000
Add:- delivery charges                                                                   =      10,000
          erection charges                                                                   =     20,000
          Additional component to increase capacity of machine    =     40,000
                                                                                                          -------------------
                                                                                                          = 5,90,000
Less:- Agreed discount                                                                   =   (50,000)
                                                                                                         ----------------------
Cost of the machinery :-                                                                =  5,40,000

Depreciation on machinery (SLM Basis) = Cost of machinery x rate 
                                                                   = 5,40,000 x 10/100
                                                                   = 54,000.
Note:- All the cost that are incurred to bring the machinery in the running condition when purchased will be added to the cost of the machinery. Costs like annual maintenance charges, insurance charges, additional maintenance charges etc will not be included in the cost of the machinery.