Costing Depreciation

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sankara pandi (Querist)
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19 December 2010 A machine was bought @ Rs. 5,00,000 in the year 2000. The depreciation rate is 25% as per book of accounts. It has estimated life of 20 years and has no salvage value. The market price of new machine is Rs. 9,00,000 in the year 2010.

What is the procedure for calculating in replacement method of depreciation?

CA Shailesh Kumar Bhagat

CA Shailesh Kumar Bhagat (Expert)
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19 December 2010 Deprectaion under costing comes under factory overhead. Overhead is charges as per machinary hour or life of the machinary. You can take the deprectaion as per the life of the machinary. However , you have to show the difference while reconciling the profi as per books and cost accounting.

Replacement method should not be adopted for cost accounting purpose.

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CA Ankit Gulgulia (Jain)

CA Ankit Gulgulia (Jain) (Expert)
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20 December 2010 Mr. Sankara ,

If you Looking for Overhead Allocation then Surely Replacement method Cannot be the Apt Base.

But Theoretically If u want To know , Kindly Note!
1)Take Market Value and Identify the WDV as would have been on this Value in the Begining of the year.

2) Consider Depreciation on this WDV now.

Besides This what must be Kept in mind is that Allocation should be Done after Considering Machine Hour Rate , Since Replacement Cost Depreciation can provide Weird Results Also.

Regards
Ankit Gulgulia

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