Question 1 (b)
Depreciation of a business that is not a going concern
2 marks
- Time to write
- About 4 minutes
From an older CBCS paper
Question
Question 1 (b) · 2 marksIn the Trial Balance of Kunal co, which is not a going concern, Property,Plant & Equipment appeared at ₹ 75,00,000. Property,Plant & Equipment are subject to depreciation @10% on WDV basis.Property,Plant & Equipment's Realizable value is 80%, and Realizable Expenses are 5%. At what amount depreciation wil be shown in Kunal co's Income Statement. [2 Marks]
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
What the paper leaves open
"Wil" is kept as printed. As the company is not a going concern, the asset is measured at net realisable value; the depreciation figure is read as the write-down to that value.
Write it in this order
- 1 Basis 1 mark 2 min
- 2 Amount 1 mark 2 min
Try it first. About 4 minutes for 2 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Principle. Depreciation is the systematic allocation of an asset's depreciable amount over its useful life; on a cost basis (here 10% WDV) it presumes a going concern that will go on using the asset; for a business that is winding up, original cost is no indicator of realisable value, so the property, plant and equipment are measured at net realisable value and the amount charged is the write-down to that value (paper note).
| Particulars | ₹ |
|---|---|
| Book value in the trial balance | 75,00,000 |
| Realisable value (80%) | 60,00,000 |
| Less: realisation expenses (5% × 60,00,000) | 3,00,000 |
| Net realisable value | 57,00,000 |
| Amount shown as depreciation (75,00,000 − 57,00,000) | 18,00,000 |
(On a going-concern basis it would have been 10% × 75,00,000 = ₹7,50,000.)
Where the 2 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Basis | 1 |
| 2 | Amount | 1 |
| Total | 2 |
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