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A machine has been purchased for Rs. 100,000 and its useful life is estimated to be 10 years. Its scrap value at the end of 10 years is estimated as Rs. 20,000. If the depreciation is determined using the declining balance method, the value of depreciation (in Rs.) during the first year is _______ |
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Answer» Concept: Book value at the end of 1 years (BV1) = P - Pf = P (1 - f) Book value at the end of n yrs (BV10) = p (1 - f)n where, f = fixed percentage of the book value D = Depreciation = pf P = Purchasing value Calculatio: Given: Purchased value = P = 100,000/- Life time of product = n = 10 yrs Scrap value after 10 yrs (BV10) = 20,000/- Using declining balance method Let; f = fixed percentage of the book value So, D = Depreciation = Pf ∴ Book value at the end of 1 years (BV1) = P - Pf = P (1 - f) Similarly; Book value at the end of 10 yrs (BV10) = P (1 - f)n ⇒ 20,000 = 100,000 (1 - f)10 ⇒ f = 0.149 Now, BV1 = P (1 - f) = 100,000 (1 - 0.149) = 85,100 So value of depreciation during first year = 100000 - 85100 = 14900 |
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