Zenith Ltd., a medium-sized manufacturing company engaged in the production of precision industrial components, has provided the following details…
CA Intermediate · Advanced Accounting · RTP · January 2026
Zenith Ltd., a medium-sized manufacturing company engaged in the production of precision industrial components, has provided the following details of its fixed assets. You are required to calculate depreciation for each asset for the year ended 31st March, 2025, in accordance with the provisions of AS 10 (Revised) – Property, Plant and Equipment. (i) Machinery was purchased on 1st April, 2020 for 10 lakhs. The management estimated its useful life at 5 years, and the residual value at the end of its useful life, based on 2020 prices, is 10 lakhs. (ii) The company owns a piece of land acquired for 50 lakhs, which is being held for use in its factory operations. (iii) Zenith Ltd. constructed a machine for its own use at a total cost of 5,00,000. The construction was completed on 1st April, 2024. The machine has a useful life of 10 years; however, the company did not commence using the machine until 31st March, 2025. (iv) Another machine was purchased on 1st April, 2022, for 50,000, having a useful life of 5 years and nil residual value. Subsequently, on April 1, 2024, the management decided that the machine would now be used for only two more years.
Suggested Answer and Working Notes:
(a) Computation of amount of depreciation as per AS 10 ₹ (i) Machinery purchased on 1/4/20 for 10lakhs (having residual value of 10lakhs) Reason: The company considers that the residual value, based on prices prevailing at the balance sheet date, will equal the cost. Therefore, there is no depreciable amount and depreciation is correctly zero. Nil (ii) Land (50 lakhs) (considered freehold) Reason: Land has an unlimited useful life and therefore, it is not depreciated. Nil (iii) Machinery constructed for own use (₹ 5,00,000/10) Reason: The entity should begin charging depreciation from the date the machine is ready for use i.e. 1st April, 2024. The fact that the machine was not used for a period after it was ready to be used is not relevant in considering when to begin charging depreciation. 50,000 (iv) Machinery having a revised useful life Reason: The entity has charged depreciation using the straight-line method at 10,000 per annum i.e (50,000/5 years). On 1st April, 2024 the asset's net book value is [50,000 – (10,000 x 2)] i.e.30,000. The remaining useful life is 2 years as per revised estimate. The company should amend the annual provision for depreciation to charge the unamortized cost over the revised remaining life of 2 years. Consequently, it should charge depreciation for the next 2 years at 15,000 per annum i.e. (30,000 / 2 years). 15,000
Topics: AS 10
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