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GDB Question

 

On 1st April 2016, a manufacturing firm bought a machine for Rs. 120,000. The estimated useful life of this machine was determined by an engineering firm as 5 years with no residual value. Owing to a sudden mechanical breakdown in the machinery, it started losing its productivity. Management of the firm had decided to replace this machinery with the most updated version to maintain the productivity. The machine was sold on 31st December 2017 for Rs. 65,000 and on the same date a new machine was purchased. The firm uses straight line method of depreciation for its all non-current assets on “the basis of use”.  Its reported net profit in profit and loss account was Rs. 40,000 on 31st December 2017. The firm closes its books of account on 31st December each year.

 

Required:

 

1 - What will be the amount of: 

  1. depreciation on 31st December 2016?
  2. accumulated depreciation at the time of disposal of machinery?
  3. loss on the disposal of machine? 

 

2 - What will be the effect on reported profit as at 31st December 2017, if the firm changes its depreciation method from straight-line to written down value using 20% rate of depreciation per annum. (Working is not required. Just mention either the “Profit will be increased by Rs._____”  Or “Profit will be decreased by Rs._____” or “ No effect on profit”).

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