HAND OUT ACCOUNTING FOR DEPRECIATION inst: athar iqbal

DEPRECIATION
Q No.1
ABC Co. purchase office equipment for Rs. 125,000 on credit from Hamid & Co. Co paid
transportation charges Rs.5000. Estimated life of the asset is 10 years and scrap value Rs.10,000.
Co decided to use straight line method for depreciation assets

Required:
1: Compute total cost of office equipment
2: Compute depreciation for first three years
3: Present Schedule of depreciation showing book value
4: Prepare Allowance for depreciation account

Q No.2 Company bought machine at Rs. 40,000 on Jan.1 1998. Paid installation charges Rs.5000
Estimated life of the machine is expected to be four years and residual value is 4000.
Prepare Schedule showing cost, depreciation and book value under given method separately showing
four years depreciation and residual value.

1) STRAIGHT LINE METHOD

2) DIMINISHING BALANCE METHOD ( rate 25% )

Q No. 3

ABC & Co imported machine from Italy at Rs.1256,000, Co. paid freight charges Rs.75,000 and
insurance in transit Rs.25000. Co also paid import duty Rs.235,000 and transportation charges
Rs.5000. Foundation and installation cost incurred Rs. 125,000. Test run cost incurred Rs.15,000.
Estimated life of the machine is 20 years and expected scrap value is Rs.250,000.

Required:
1) Compute total cost of the machine
2) Compute depreciation expense under following methods for three years:
 Straight line method
 Diminishing balance method( rate 20% )
 Double declining balance method

Q No.4
Salim & Co bought machine at a cost of Rs.500,000 on January 1,1997 on credit from Sheeraz
brothers. Estimated life of the machine is 5 years and scrap value is Rs.160,000.

Required:
Present schedule of depreciation for 5 years under Diminishing Balance method(Rate 20%).
Last year depreciation should be adjusted to arrive at scrap value:
Q No.5
Merchant & Co bought machine at a cost of Rs.200,000 on September 1,1999 on credit from Hamid
brothers. Paid installation cost Rs.20,000. During installation certain part of machine damage and
repaired at a cost of Rs.5000.Estimated life of the machine is 5 years and scrap value is Rs.40,000.

Required:
Present schedule of depreciation under following methods for 5 years. Last year depreciation should
be adjusted to arrive at scrap value:
Straight line method
Diminishing Balance method(Rate 30%)

Q No.6
Khalid Brothers purchased two machines at a cost of Rs.25000 each on March 5,1998. Another
machine bought on July 5,1998 at Rs.75,000. Three machines purchased on September 5, 1998 at
Rs.40,000 each.

Required:
Present Machine Account on December 31,1998.
Compute depreciation under straight line method( Rate 10% ) using fraction of the year of 1998.
Present book value at December 31,1998.

Q No.7
A company bought machine on July 1, 1998 at a list price of Rs.80, 000. Trade discount availed 10%.
Credit term is 2.5/10, n/45. Company paid following expenses:
Installation charges Rs.5000
Foundation charges 12500
Trial run cost 2000
The estimated life of the machine is expected to be 10 years and expected scrap value is Rs.9500.

Required:
1. Compute total cost of the machine
2. Compute depreciation for the year 1998, 1999 and 2000 under following methods.
a. straight line method
b. Double Declining balance method

Q No.8
ABC Co. purchased following equipments on different date.
Date Machine cost Scrap value Life
05-5-98 Rs. 45,000 5,000 10
01-08-99 100,000 10,000 15
01-09-2000 75,000 7500 8

Required:
Compute depreciation for the year 98,99,2000,and 2001 under following methods separately.
Case-a: Straight line method
Case-b: Diminishing balance method ( rate 20% )
Q No.9
Khalid and company bought Machine-A on July 1,99 at Rs.50,000. Estimated life is 10 years and
scrap value is Rs. 5000. Machine-B bought on September 05,01 at Rs.125,000, scrap value is
Rs.10,000 and life is 8 years. On November 1,02 company purchased Machine-C at Rs.225,000.
On November 2,2003 company purchased Machine-D at Rs.75,000.
Required:
Prepare machine account
Compute depreciation charge for the year 1999 to 2003 under straight line method using 7.5% rate of
depreciation. Depreciation should be computed on monthly basis.

Q No.10

XYZ & Co Purchased machine from at Rs.750,000, co. paid freight charges Rs.50,000.
Estimated life of the machine is 20 years and during this period estimated working life is
500, 000 hours and produced 1250,000 units. Expected scrap value is Rs.50,000.

Required:

Compute depreciation expense

 On the basis of hours worked 1st year 15000 hours, 2nd year 30,000 hours
 On the basis of units produced 1st year 25,000 units, 2nd year 45,000 units