Multiple choice

A machine purchased on 1st January 2003 at Rs. 15,00,000, having useful life of 15 years was depreciated on straight line basis. On 1st January 2006, the same machine was revalued upward by Rs. 3 lacs. The amount of depreciation for the year 2006 will be

  1. Rs. 1,25,000

  2. Rs. 1,00,000

  3. Rs. 1,20,000

  4. Rs. 1,50,000
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A Correct answer
Explanation

Original machine cost: Rs. 15,00,000 with 15-year life, giving annual depreciation of Rs. 1,00,000. By 2006, accumulated depreciation for 3 years (2003-2005) = Rs. 3,00,000. Book value at start of 2006 = Rs. 15,00,000 - Rs. 3,00,000 = Rs. 12,00,000. After revaluation upward by Rs. 3,00,000, new value = Rs. 15,00,000. Remaining useful life = 12 years (2006-2017). New annual depreciation = Rs. 15,00,000 / 12 = Rs. 1,25,000.

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