Imran Limited imported technicalmachinery costing Rs. 300,000 on July 01,2003 .
ID: 2457555 • Letter: I
Question
Imran Limited imported technicalmachinery costing Rs. 300,000 on July 01,2003. It further incurred the following expenses onthe machinery:
Import duty Rs. 100,000
Non-refundable taxes Rs. 5,000
Transportation cost Rs. 6,000 tobring the machinery to factory premises
Insurance in transit Rs. 4,000
Initially the useful life wasestimated to be five years and depreciation was provided onstraight-line basis. The estimated break up value was Rs.15,000.
During the year 2004-05 the company estimated the remaining life ofthe machinery to be four years instead offive years. The break up value was re-estimated atRs. 20,000.The machinery was sold on July01, 2006 for Rs. 280,000
Required:
1. Calculate the cost ofmachinery
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 the yearended June 30, 2004
5. Calculate the book value of machinery for the year endedJune30, 2004
6. Calculate the depreciation expense of machinery for the yearended June 30, 2005
Answer:
1. Total cost of the machinery:
Purchase amount = 300,000
Import duty = 100,000
Transportation expenses = 6000
Taxes = 5,000
Insurance in transit it = 4,000
Total cost = 300,000 + 100,000 + 6000 + 5000
= 415,000
2. Depreciation rate
initially useful value was 5 years
Initial Residual value = 15000
Total cost – residual value =415000 – 15000 = 400,000
Initial depreciation rate =(415000-15000)/5
= 80,000
= 80000/400000*100
= 20 %
Revised Depreciation rate at year 2004-2005 willbe:
Re- estimated break up value = 200,000
= 78750
The machinery was sold on July 01,2006 for Rs. 280,000
Explanation / Answer
Answer is correct ( just writting mistake in Re estimated break up value is 20,000 instead of 200,000)