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

Question

PROBLEM:
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 machinery to 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 estimatedbreak up value was 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. 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 There is a typo in the problem. It says five yrs initial period,then in the second line it says 4 yrs. so iam using 4 yrs for theinitial depreciation. Initial depreciation rate 415,000-15,000         4 = 100,000 / yr 100 *100              400 = 25% Revised Rate 415,000-100,000-20,000             5 59,000 59,000     * 100 295,000 = 20% 3. Depreciable amount.at initial stage Asset value - Residual 415,000-15,000 =400,000 4.Depreciation expense for year ended june 30,2004 415,000-100,000-20,000            5 295,000 /5 = 59,000 5.Book value on June 2004 415,000-100,000-59,000 = 256,000 6. 2005 dep. exp is also 59,000

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