Q.Calculate the rate of depreciation under straight line method from the following information:
Purchased a second hand machinery on 1.1.2016 for ₹38,000
On 1.1.2016 spent ₹12,000 on its repairs
Expected useful life of machine is 4 years
Estimated residual value ₹6,000

Total cost ₹50,000, annual SLM depreciation ₹11,000, giving a depreciation rate of 22% p.a.

Step 1 – Total cost of the machine. Repairs on a second-hand asset that are necessary to bring it into working condition are capitalised.

• Cost = Purchase price + Repairs = ₹38,000 + ₹12,000 = ₹50,000.

Step 2 – Annual depreciation (straight line method).

• Depreciation p.a. = (Cost − Residual value) ÷ Useful life = (50,000 − 6,000) ÷ 4 = 44,000 ÷ 4 = ₹11,000. …