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प्रश्न
State the limitations of written down value method of depreciation.
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उत्तर
Following are the limitations of the written down value method.
- Assets cannot be completely written off:
Under this method, the value of an asset even if it becomes obsolete and useless, cannot be reduced to zero and some balance would continue in the asset account. - Ignores the interest factor:
This method does not take into account the loss of interest on the amount invested in the asset. The amount would have earned interest, had it been invested outside the business is not considered. - Difficulty in determining the rate of depreciation:
Under this method, the rate of providing depreciation cannot be easily determined. The rate is generally kept higher because it takes very long time to write off an asset down to its scrap value. - Ignores the actual use of the asset:
Under this method, a fixed rate of depreciation is provided on the written down value of the 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.
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संबंधित प्रश्न
Write the word/term/phrase which can substitute the following statement:
The type of asset on which depreciation is charged.
Select the most appropriate answer from the alternatives given below and rewrite the sentence:
The amount spent on installation of new machinery is a ______ expenditure.
State whether the following statement is True or False with reasons:
Depreciation is charged on Current Assets only.
Complete the following sentence:
Depreciation Account is a ______ account.
Which method shall be efficient, if repairs and maintenance cost of an asset increases as it grows older.
Distinguish between straight-line method and written down value method of providing depreciation.
A manufacturing company purchased on 1st April 2010, a plant and machinery for ₹ 4,50,000 and spent ₹ 50,000 on its installation. After having used it for three years, it was sold for ₹ 3,85,000. Depreciation is to be provided every year at the rate of 15% per annum on the fixed installment method. Accounts are closed on 31st March every year. Calculate profit or loss on sale of machinery.
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.
Correct the following statement and rewrite the statement.
Underwritten down value method depreciation is calculated on the original cost of an asset.
Samarth Manufacturing Co. Ltd, Aurangabad, purchased a New Machinery for ₹ 45,000 on 1st Jan 2015 and immediately spent ₹ 5,000 on its fixation and erection. In the same year, 1st July additional Machinery costing ₹ 25,000 was purchased. On 1st July 2016, the Machinery purchased on 1st Jan 2015 became obsolete and was sold for ₹ 40,000.
Depreciation was provided annually on 31st March at the rate of 10% per annum on the Fixed Instalment Method.
You are required to prepare Machinery Account for the year 2014-15, 2015-16, 2016-17.
