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GDB 1

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Requirement No. 1

                              Depreciation of non-current asset according straight line method will be as follows,

Purchase of Value of Non-Current Asset= 200,000 Rs.

Useful life of Asset= 5 Years

Annual Depreciation value= (Purchase Cost – Salvage Value) / Useful Life in Years

Annual Depreciation value= (200,000 – 20,000)/ 5 years

Annual Depreciation value=          36,000 Rs.

 

Requirement No. 2

                              Reporting of Non-Current Asset at written down value is more realistic because value of asset depreciate with its usage and with change in price of market value, as well as intangible assets become amortized with decrease in its market value.

 

Requirement No. 3

                              Purchase of Non-Current Asset is capital expenditure but Mr Hamid allocated its purchase as revenue expenditure which understates the profit in profit and loss account and overstates the capital account in balance sheet.

 

Requirement No. 4

                              Correct Amount of Profit is must be greater than 500,000 Rs.

Profit & Loss Account= 500,000(Profit) + 200,000(Non-Current Asset) – 36,000(Annual Depreciation)

Profit & Loss Account= 664,000 Rs.

 

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