Depreciation and AmortisationQ-3 | Depreciation and AmortisationQuestion 5072 of 42
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Detailed Solution & Explanation

Depletion method:  This method is followed in case of exhaustive (wasting) assets e.g., mines.  For charging depreciation on such item the life of the Asset (lease period) is not very important because it can be used (ie., Mineral can be extracted) only till it contains minerals.  As soon as the mineral is exhausted the mine becomes useless.  Therefore depreciation is calculated in proportion of the mineral extracted in a particular year to the total extractable mineral contained in it. Depreciation (per ton, etc.)=Cost of AssetExtractable Quantity of Mineral\text{Depreciation (per ton, etc.)} = \frac{\text{Cost of Asset}}{\text{Extractable Quantity of Mineral}}

About This Chapter: BRS & Inventories

Paper

Paper 1: Accounting

Weightage

20-25%

Key Topics

Reconciliation, Valuation, Depreciation

This chapter covers Reconciliation, Valuation, Depreciation and is part of Paper 1: Accounting in the CA Foundation exam.

View Official ICAI Syllabus

Exam Strategy Tip

This topic carries 20-25% weightage. Focus on understanding core concepts rather than memorizing.

Key Concepts to Understand

Depreciation

Allocation of the cost of a tangible fixed asset over its useful life due to wear and tear, efflux of time, or obsolescence.

Related Comparison Tables

SLM vs WDV Depreciation: CA Foundation Accounts

More Questions from Depreciation and Amortisation

The following details are available of raw material of a manufacturing unit : 1-5-2024 Opening Inventory 100 units @ Rs. 15 per unit 2-5-2024 Purchases 300 units @ Rs. 18 per unit 5-5-2024 Issued for consumption 250 units 16-5-2024 Purchases 500 units @ Rs. 21 per unit 21-5-2024 Issued for consumption 100 units 25-5-2024 Issued for consumption 450 units The manufacturer also incurred the following expenses: ◆ Freight of 300 and unloading charges of 150 at the time of every purchase respectively. ◆ Warehouse rent of ₹ 2,000 per month. ◆ Administrative Expenses of ₹ 1,500 per month. You are required to find out the value of inventory as on May 31, 2024 if the company follows: (a) Weighted Average method for inventory valuation. (b) First in First Out method for inventory valuation. [Jan. 2025, Marks 5]

Meaning of depreciation

Sum of Years of Digits Method

Depletion method

Discuss the factors taken into consideration for calculation of depreciation. [Nov. 2020, 5 Marks]

Amortisation [Dec. 2021, 1 Mark]

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