Imran Limited imported technical machinery costing Rs. 300,000 onJuly 01, 2003.

Question

Imran Limited imported technical machinery costing Rs. 300,000 onJuly
01, 2003. It further incurred the following expenses on themachinery:
Import duty Rs. 100,000
Non-refundable taxes Rs. 5,000
Transportation cost Rs. 6,000 to bring the machineryto factory
premises
Insurance in transit Rs. 4,000

Initially the useful life was estimated to be five years anddepreciation
was provided on straight-line basis. The estimated break up valuewas
Rs. 15,000.

During the year 2004-05 the company estimated the remaining life ofthe
machinery to be five years instead of four years. The break upvalue was
re-estimated at Rs. 20,000.

The machinery was sold on July 01, 2006 for Rs. 280,000

Required:
1. Calculate the cost of machinery
2. Calculate the depreciation rate ( Initial and Revised)
3. Calculate the depreciable amount of machinery at initialstage
4. Calculate the depreciation expense of machinery for theyear
ended June 30, 2004
5. Calculate the book value of machinery for the year endedJune
30, 2004
6. Calculate the depreciation expense of machinery for theyear
ended June 30, 2005

Explanation / Answer

1

2

3

4

5

6

1

Cost of Machinery: Rs. Purchase price $300,000 Import duty 100000 Non-refundable tax 5000 Transportation 6000 Insurance 4000 Total cost $415,000

2

Depreciation rate = 1/5year = 20% (Initial) Revised             = 1/5year = 20%

3

Depreciable amount    = $415000 -15000 (Initial)                                = $400,000

4

Depreciation expense = $400000 / 5 1 july03 to 30june2004 $80000 (annually)

5

Book value 30 june2004 = $415000 - $80000 $335,000

6

Depreciation expense     = $335000 - 20000 / 5 1 july 04 -30 june05 $63,000 (Revised)

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