Question
Download Solution PDFA test facility setup coast Rs. 10,00,000 at the time of installation, and its scrap value is Rs. 50,000 at the end of the useful life in 10 years. Adopting a straight line method for computation of depreciation, estimate the book value of the facility at the end of five years.
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFConcept:
In the Straight line method, it is assumed that the property loses its value by the same amount every year. A fixed amount of the original cost is deducted every year so that at the end of the utility period only the scrap value is left
Annual Depreciation is given by:
\(D = \frac{{Original\;cost\; - Scrap\;value}}{{life\;in\;years}} = \frac{{C - S}}{n}\)
Where, D = Annual Depreciation, S = Scrap value & n = life of the property in years
Calculation:
n = 10 years
S = Rs.50,000
C = Rs. 10,00,000
\(D = \frac{{1000000 - 50000}}{{10}} = Rs.95000\;per\;year\)
So At the end of 5 years,
Book value of the property = Original cost - 5 × D
= 1000000 – 5 × 95000
= Rs. 525000.
Last updated on May 28, 2025
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