Please refer to the Problem 2 above. After depreciating the machine for three years using SLM, in the fourth year Satluj Cements decided to change the method of depreciation to WDV at 20% per annum. How will the change affect the profit and loss statement and balance sheet of the company?

Problem 2

Satluj Cements Limited purchased a machine costing ₹ 15 million. As per suppliers warranty, the physical life of the machine is estimated to be eight years. However, the management would like to replace the machine after five years. At that time, the machine is expected to fetch a residual value of ₹ 5 million. 

1. What will be the annual depreciation if the company follows the straight line method of charging depreciation? 

2. How will the asset and depreciation appear in the second year’s balance sheet and profit and loss statement of Satluj Cements Limited after acquisition of the machine?