Question
Download Solution PDFA machine is purchased for ₹10,000,00 and has an estimated life of 10 years. The salvage value at the end of 10 years is ₹1,50,000. The book value of the machine at the end of 5 years using general straight-line method of evaluation of depreciation is:
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFConcept:
The straight-line method of depreciation assumes that an equal amount of depreciation is deducted from the asset's value each year over its useful life. The book value at any given time is the original cost of the asset minus the accumulated depreciation.
Given Data:
- Initial cost of the machine = ₹10,00,000
- Estimated life of the machine = 10 years
- Salvage value after 10 years = ₹1,50,000
Annual Depreciation:
\( \text{Annual Depreciation} = \frac{\text{Cost of Asset} - \text{Salvage Value}}{\text{Life of Asset}} \)
\( \text{Annual Depreciation} = \frac{₹10,00,000 - ₹1,50,000}{10} = ₹85,000 \, \text{per year} \)
Depreciation over 5 Years:
\( \text{Total Depreciation in 5 Years} = ₹85,000 \times 5 = ₹4,25,000 \)
Book Value after 5 Years:
\( \text{Book Value after 5 Years} = \text{Initial Cost} - \text{Total Depreciation} \)
\( \text{Book Value after 5 Years} = ₹10,00,000 - ₹4,25,000 = ₹5,75,000 \)
The book value of the machine at the end of 5 years is ₹5.75 Lakhs.
Last updated on Jun 4, 2025
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