A computer purchased on 1st October 2019 for Rs 40,000 debited to Office Expenses Account is to be brought into account on 31st March 2021 charging depreciation @10% p.a. on written down value basis.
Question
A computer purchased on 1st October 2019 for Rs 40,000 debited to Office Expenses Account is to be brought into account on 31st March 2021 charging depreciation @10% p.a. on written down value basis.
Solution
To solve this problem, we need to calculate the depreciation for the computer for the relevant years and then subtract it from the original cost to get the written down value on 31st March 2021.
Step 1: Calculate the number of months for which the computer has been used till 31st March 2021. The computer was purchased on 1st October 2019, so it has been used for 18 months till 31st March 2021.
Step 2: Calculate the annual depreciation. The rate of depreciation is 10% per annum on the written down value. So, the annual depreciation for the first year (October 2019 to September 2020) is 10% of Rs 40,000 = Rs 4,000.
Step 3: Calculate the written down value at the end of the first year. This is the original cost minus the depreciation for the first year. So, the written down value at the end of September 2020 is Rs 40,000 - Rs 4,000 = Rs 36,000.
Step 4: Calculate the depreciation for the second year (October 2020 to March 2021). This is 10% of the written down value for 6 months (half a year). So, the depreciation for the second year is 10% of Rs 36,000 * 0.5 = Rs 1,800.
Step 5: Calculate the written down value at the end of 31st March 2021. This is the written down value at the end of the first year minus the depreciation for the second year. So, the written down value at the end of 31st March 2021 is Rs 36,000 - Rs 1,800 = Rs 34,200.
So, the computer should be brought into account on 31st March 2021 at a value of Rs 34,200.
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