PROBLEM: Imran Limited importedtechnical machinery costing Rs. 300,000 on July 0

Question

PROBLEM:

Imran Limited importedtechnical machinery costing Rs. 300,000 on July

01, 2003. It further incurredthe following expenses on the machinery:

Import duty Rs.100,000

Non-refundable taxes Rs.5,000

Transportation cost Rs. 6,000to bring the machinery to factory

premises

Insurance in transit Rs.4,000

Initially the useful life wasestimated to be five years and depreciation

was provided on straight-linebasis. The estimated break up value was

Rs. 15,000.

During the year 2004-05 thecompany estimated the remaining life of the

machinery to be five yearsinstead of four years. The break up value was

re-estimated at Rs.20,000.

The machinery was sold on July01, 2006 for Rs. 280,000

Required:

1. Calculate the cost ofmachinery

2. Calculate the depreciationrate ( Initial and Revised)

3. Calculate the depreciableamount of machinery at initial stage

4. Calculate the depreciationexpense of machinery for the year

ended June 30, 2004

5. Calculate the book value ofmachinery for the year ended June

30, 2004

6. Calculate the depreciationexpense of machinery for the year

ended June 30, 2005

Explanation / Answer

1. Cost of machinery      Cost   300,000      Duty      100,000 Transport         6,000 Taxes              5,000 Transit ins.       4,000 Cost           415,000 2. Depreciation rate Initial depreciation rate 415,000-15,000         5 = 80,000 / yr 80 *100              400 = 20 % Revised Rate 415,000-80,000-20,000            4 78,750 78,750    * 100 315,000 25% 3. Depreciable amount.at initial stage Asset value - Residual 415,000-15,000 =400,000 4.Depreciation expense for year ended june 30,2004 415,000-15,000            5 = 80,000 5.Book value on June 2004 415,000-80,000 = 335,000 6. 415,000 -80,000-20,000          4 =78,750

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