The cost of a machine is Rs. 50,000 with a useful life of 10 years. Its depreciated cost after 5 years, if salvage value is Rs. 10,000 on straight line basis, will be
- A35,000
- B30,000Correct
- C25,000
- D20,000
Solution
Concept
Straight-line depreciation
Formula
Annual depreciation = (Cost − Salvage) / Life
Step-by-step solution
1. Annual depreciation = (50,000 − 10,000)/10 = Rs. 4,000. 2. Depreciation in 5 years = 5 × 4,000 = Rs. 20,000. 3. Depreciated cost = 50,000 − 20,000 = Rs. 30,000.
Explanation
In the straight-line method the same amount is deducted every year. After 5 of the 10 years, half of the depreciable amount (Rs. 40,000) has been written off.
Shortcut
Book value after n years = C − n (C − S)/N.
Common mistake
Forgetting to subtract the salvage value before dividing.
Correct answer: B) 30,000