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प्रश्न
State the limitations of straight-line method of depreciation.
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उत्तर
Following are the limitations of straight-line method of depreciation:
- Ignores the actual use of the asset:
Under this method, a fixed amount of depreciation is provided on each asset by applying the predetermined rate of depreciation on its original cost. But, the actual use of the asset is not considered in the computation of depreciation. - Ignores the interest factor:
This method does not take into account the loss of interest on the amount invested in the asset. That is, the amount would have earned interest, had it been invested outside the business is not considered. - Total charge on the assets will be more when the asset becomes older:
With the passage of time, the cost of maintenance of an asset goes up. Hence, the amount of depreciation and cost of maintenance put together is less in the initial period and goes up year after year. But, this method does not consider this. - Difficulty in the determination of scrap value:
It may be quite difficult to assess the true scrap value of the asset after a long period say 10 or 15 years after the date of its installation.
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संबंधित प्रश्न
Answer in One Sentence only:
Why depreciation is charged even in the year of loss?
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Expenses incurred for fixation of the new asset to bring it in working condition.
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Depreciation is charged on fixed assets.
If the total charge of depreciation and maintenance cost are considered, the method that provides a uniform charge is ______.
Calculate the rate of depreciation under straight-line method from the following information:
Purchased second-hand machinery on 1.1.2018 for ₹ 38,000
On 1.1.2018 spent ₹ 12,000 on its repairs
Expected useful life of the machine is 4 years
Estimated residual value ₹ 6,000.
Ragul purchased machinery on April 1, 2014 for ₹ 2,00,000. On 1st October 2015, a new machine costing ₹ 1,20,000 was purchased. On 30th September 2016, the machinery purchased on April 1, 2014 was sold for ₹ 1,20,000. Books of accounts are closed on 31st March and depreciation is to be provided at 10% p.a. on straight line method. Prepare machinery account and depreciation account for the years 2014-15 to 2016-17.
On 1st Jan 2015, Triveni Traders Raigad purchased a Plaint for ₹ 12,000, and installation charges being ₹ 3,000. On 1st July 2016 another Plant was purchased for ₹ 25,000, on 1st April 2017 another Plant was purchased for ₹ 27,000, wages paid for installation amounted to ₹ 2,000. Carriage paid for the Plant amounted to ₹ 1,000. Show Plant Account up to 31st March 2018 assuming that the rate of depreciation is @ 10% p.a. on Straight Line Method.
On 1st April 2015, Suman Traders purchased Machinery for ₹ 30,000. On 1st Oct. 2015, they purchased further Machinery costing ₹ 20,000.
On 1st Oct. 2016, they sold the Machine purchased on 1st April 2015 for ₹ 18,000 and brought another Machine for ₹ 15,000 on the same date.
Depreciation is provided on Machinery @ 20% p.a. on the Diminishing Balance Method and the financial year closes on 31st March every year.
Prepare the Machinery Account and Depreciation Account for the year 2015-16, 2016-17, and 2017-18.
Which of the following methods charges an equal amount of depreciation every year?
The Sum-of-the-Years’-Digits Method results in:
