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    Question

    A company purchases machinery for ₹50 lakhs with a

    useful life of 10 years and salvage value of ₹5 lakhs. The company uses straight-line depreciation. Due to a change in accounting policy, it now switches to the Written Down Value (WDV) method mid-way, citing better matching of revenue with expenses. What is the impact on financial statements?
    A Profit increases in later years Correct Answer Incorrect Answer
    B Depreciation remains unchanged Correct Answer Incorrect Answer
    C Profits rise in early years Correct Answer Incorrect Answer
    D Depreciation increases in early years Correct Answer Incorrect Answer
    E Tax liability reduces in later years Correct Answer Incorrect Answer

    Solution

    WDV method results in higher depreciation in initial years compared to SLM, which reduces profits early on but provides tax benefits through deferred tax savings.

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