Vardhaman Traders purchased a machinery on 4.4.2019 at a price of Rs 250000 and paid Rs50000 on the carriage of the machinery to bring it to the factory premises. Themanagement decides that charging depreciation as per the WDV method will make more sense. It was decided that – The depreciation would be charged @15% on WDV method The useful life of the machinery is 5 years The machinery has been disposed off at the completion of 3 years at a value of Rs200000 Required- Discuss the concept of charging depreciation through WDV method. Calculate the closing WDV and depreciation for all the first three years. Calculate the profit and loss, if any on the disposal of the asset . Is this possible for any business entity to change the method of charging depreciation
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Vardhaman Traders purchased a machinery on 4.4.2019 at a price of Rs 250000 and
paid Rs50000 on the carriage of the machinery to bring it to the factory premises. Themanagement decides that charging
more sense.
It was decided that –
The depreciation would be charged @15% on WDV method
The useful life of the machinery is 5 years
The machinery has been disposed off at the completion of 3 years at a value of
Rs200000
Required-
Discuss the concept of charging depreciation through WDV method. Calculate the
closing WDV and depreciation for all the first three years. Calculate the
if any on the disposal of the asset .
Is this possible for any business entity to change the method of charging depreciation
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