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

Question

PROBLEM:

Imran Limited imported technical machinery costing Rs. 300,000on July

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 machinery tofactory

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 upvalue was

Rs. 15,000.

During the year 2004-05 the company estimated the remaining lifeof the

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 ofmachinery: Purchase price 300000 Import duty 100000 Non-refundable tax 5000 Transportation cost 6000 Insurance in transit 4000 Total Cost of 415000 Machinery

2

Depreciation rate = 1/5 = 20% (Initial) Depreciation rate = 1/5 = 20% (revised)

3

Depreciable amount (initialstage)               = Original cost -scrap value                  = 415000 - 15000                  = 400000

4

Depreciation expense   = Depreciable base * Depreciation rate for 12 months 1July03 to 30June04   = 400000*20% Depreciation annually    = 80000

5

Book value at 30June 04 = 400000 - 80000                  = 320000

6

Depreciation expense    = 320000 * 20% 1 July 04 - 30 June 05                   = 64000

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