Multiple choice

X Ltd. which depreciates its machinery at 10% p.a. on diminishing balance method, had on 1st April 20X6 some balance to the debit of machinery account. It purchased a new machine for Rs. 1, 90, 000 on 1.8.20X6 after incurring Rs. 10, 000. After providing depreciation the closing balance of machinery account as at 31.3..20X7 is Rs. 10, 64, 800.

The original cost of old machines purchased on 1.4.20X4 is

  1. Rs. 12, 00, 000

  2. Rs. 10, 80, 000

  3. Rs.9, 72, 000

  4. Rs. 8, 74, 800
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A Correct answer
Explanation

Let old machines original cost (1.4.20X4) be X. New machine: 1,90,000 + 10,000 = 2,00,000 (from 1.8.20X6). New machine depreciation: 2,00,000 × 10% × 8/12 = 13,333. New machine WDV: 1,86,667. Old machines after 3 years (1.4.20X4 to 31.3.20X7): WDV = X × 0.9^3 = 0.729X. Total balance given: 10,64,800 = 1,86,667 + 0.729X. Solving: 0.729X = 8,78,133, so X ≈ 12,04,000 ≈ 12,00,000 ✓

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