DEPRECIATION

Question 1: Kapil Ltd purchased a machinery on July 1, 2001 for Rs 3,50,000. It purchased two additional
machines, on April 1, 2002 costing Rs 1,50,000 and on October 1, 2002, costing Rs 1,00,000. Depreciation
is provided @ 10% per annum on straight line basis. On January 1, 2003, first machinery become useless
due to technical changes. This machinery was sold for Rs 1,00,000. Prepare Machinery account for 4 years
on the basis of calendar year.

Question 2:Machinery costing Rs. 20,00,000 was purchased on 1.4.2012. The installation charges
amounting Rs. 5,00,000 were incurred. The depreciation at 10% p.a on straight line method for the year
ended 31st March, 2013 will be -
A . 1,50,000 B .2,50,000 C .2,00,000 D .50,000

Question 3: An asset is purchased for Rs. 60,000 and Rs. 2,000 is spent on its installation. The useful life
of plant is 10 years and the essential scarp value is Rs. 6,000. Annual Depreciation under the original cost
method would be _______________.
A .Rs. 6,200 B .Rs. 5,800 C .Rs. 5,600 D .Rs. 5,400

Question 4.

On Jan 1, 2014 Zollinger Corp. purchased a piece of equipment for $12,000. The equipment has
a useful life of 4 years and an estimated salvage value of $2,000. Assume that Zollinger uses the
DOUBLE-DECLINING balance method for calculating depreciation.
What amount will be reported as "Depreciation Expense" on the 2016 income statement?
Question 5. Al Jafar Jewel Co. purchased a crystal extraction machine for $50,000 that has an
estimated salvage value of $10,000 at the end of its 8-year useful life.
Compute the depreciation schedule using:
1. Straight-line depreciation
2. Declining balance depreciation
Question 6
Sanders Construction Co. specializes in building replicas of historic houses. Brett Sanders,
president of Sanders Construction, is considering the purchase of various items of equipment on
July 1, 2014 for $300,000. The equipment would have a useful life of 5 years and no residual
value. Brett is considering depreciating the equipment by the straight-line method or the double
declining balance method. Answer the following questions:
1. Calculate the depreciation for the first year using the straight-line method and the declining
balance method, show your work.
Question 7
Suppose that your company bought a product for $200,000 and put it in service in 2015. The
product you bought will be depreciated using DIMINISHING BALANCE METHOD. The cost basis
for the product is $200,000. If we assume that this product is an office furniture;
(1).What is the depreciation amount in the second year?
(2).What is the cumulative depreciation amount in the first three years?
(3).What is the estimated book value at the end of the year 2020?
Question 8
Cany Company uses special strapping equipment in its packaging business. The equipment was
purchased in January 2013 for $8,000,000 and had an estimated useful life of 8 years with no
salvage value. At December 31, 2014, new technology was introduced that would accelerate the
obsolescence of Cany's equipment. Cany's controller estimates that expected future net cash
flows on the equipment will be $5,000,000 and that the fair value of the equipment is $4,400,000.
Cany intends to continue using the equipment, but it is estimated that the remaining useful life
is 4 years. Cany uses straight-line depreciation.
Instructions
(a) What is the carrying value of the asset?
(b) Prepare any journal entries for the equipment at December 31, 2015. The fair value of the
equipment at December 31, 2015, is estimated to be $4,600,000.
(c) Repeat the requirements for (a) and (b), assuming that Cany intends to dispose of the
equipment and that it has not been disposed of as of December 31, 2015.

Carrying Value
Carrying Value is the actual value of the asset in the market at the present time. It is estimated
by deducting the accumulated depreciation from the initial cost of the asset. It is the cost less
depreciation.
Question 9
In a business with financial years ended 31 December. A machine is bought for $2,000
on 1 January Year 1. The estimated useful life is 5 years. In Year 4, the machinery has
been sold for $1,070. The company uses diminishing balance method.
You are to show:
(a) Machinery account
(b) Provision for depreciation
(c) Disposal account
(d) Profit and loss account and Balance sheet as at 31 Dec Year 4.