As per the straight line method, what is the annual depreciation value of an equipment that has delivered price of ₹1,00,000 and has a residual value of 10% of delivered price? Assume the ownership period as 5 years.
- A₹18,000/yearCorrect
- B₹2,000/year
- C₹20,000/year
- D₹9,000/year
Solution
Concept
Straight-line depreciation
Formula
D = (Cost − Salvage) / Life
Step-by-step solution
1. Salvage value = 10% of 1,00,000 = ₹10,000. 2. D = (1,00,000 − 10,000) / 5 = ₹18,000 per year.
Explanation
In the straight-line method the same amount is written off every year over the ownership period.
Why the other options are wrong
₹20,000 forgets the salvage value, ₹9,000 divides the salvage value and ₹2,000 divides it by the life.
Shortcut
(Cost − Salvage) ÷ Years.
Common mistake
Ignoring the residual value.
Correct answer: A) ₹18,000/year