CA FOUNDATION: ACCOUNTING · DEPRECIATION ACCOUNTING

Depreciation: straight line method (SLM)

SLM annual depreciation = (Cost − Scrap value) ÷ Useful life. Cost includes freight and installation. Part year → × months/12.

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Worked examples

Example 1 · level 1

Mehta Enterprises bought a machine for ₹1,38,000. Estimated scrap value ₹6,000, useful life 6 years. Find the annual depreciation under SLM.

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Depreciable amount = ₹1,38,000 − ₹6,000 = ₹1,32,000.
Annual depreciation = ₹1,32,000 ÷ 6 = ₹22,000.

Answer: ₹22,000

Example 2 · level 2

Bansal Steels bought a machine for ₹4,06,000 and spent ₹7,000 on freight and installation. Estimated scrap value ₹7,000, useful life 7 years. Find the annual depreciation under SLM.

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Cost = ₹4,06,000 + ₹7,000 = ₹4,13,000 (costs to bring the asset to use are capitalised).
Depreciable amount = ₹4,13,000 − ₹7,000 = ₹4,06,000.
Annual depreciation = ₹4,06,000 ÷ 7 = ₹58,000.

Answer: ₹58,000

Example 3 · level 3

Kapoor Electronics (financial year ending 31 March) bought equipment for ₹3,65,000 on 1 July. Depreciation is charged @ 10% p.a. on original cost (SLM). Find the depreciation for the first year.

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Full-year depreciation = ₹3,65,000 × 10% = ₹36,500.
Months used = 9, so charge 9/12 of it.
₹36,500 × 9/12 = ₹27,375.

Answer: ₹27,375