what is the amount of depreciation?

Question

Mr. X purchased a new plant and machinery for the purpose of manufacturing the cotton year as on 01.04.05. the purchase price of plant is Rs.2,50,000. the rate of depreciation is 25%. what is the amount of depreciation?

Answer 1

Ok. So depreciation is how much is lost...

Sooo... 25% of 2,500,000 is 625,000. I think that's what ur asking.

Answer 2

Normally, the amount of depreciation is dependent on the method used. There are a nmber of acceptable methods, under U.S. GAAP accounting at least. These can be front end loaded (you record more depreciation in the beginning), back end loaded (you record more depreciation towards the end of the depreciable life) or straight line. It sounds like the method used is straight line, so you would take the depreciation rate (25%) times the asset purchase price (250,000) to get the depreciation per year (625,000). After 4 years, you owuld have fully depreciated the asset, and cannot take further depreciation against it, unless you did capital improvements to it during the time you owned it.
Note that depreciation is simply an accounting concept, and will have no impact on when the cash flow of the business (except in the case that the business makes money and is liable for taxes. In this case, depreciation will lower the taxable profit.)

Answer 3

The 25% rate of depreciation is normally established in an annual basis. So, Yo have to multiply the investment by the 0.25 factor and plus by the factor of the days, in a year You worked with the equipment or the done investment, or the called fixed capital.

For some regulations, the fiscal year has only 360 days, for others has 365 or 366, if is the case. So, The third factor for the formula can be: Nr of days worked/360, or 365, or 366.

In many countries the depreciation factor for fixed capital, like office furniture, industrial equipment, and so is 10%, for software and hardware equipment is 20%, vehicles also 20%.

If governments authorize higher percentages, that can mean they are promoting this or that kind of economical activity. I comment so, because the 25% You mention seams to be a high one example.