Question

The cost of a machinery is ₹8,00,000. Its scrap value will be one-tenth of its original cost in 15 years. Using the linear method of depreciation, the book value of the machine at the end of the 10th year will be:

• A. ₹4,80,000
• B. ₹3,20,000
• C. ₹3,68,000
• D. ₹4,32,000

Answer 1

The Correct Option is B

Using the linear method of depreciation, the annual depreciation is calculated as:

\[ \text{Annual Depreciation} = \frac{\text{Cost of Machinery} - \text{Scrap Value}}{\text{Useful Life}}. \]

Here:

Cost of Machinery = 8,00,000, Scrap Value = \(\frac{8,00,000}{10} = 80,000\), Useful Life = 15 years.

\[ \text{Annual Depreciation} = \frac{8,00,000 - 80,000}{15} = \frac{7,20,000}{15} = 48,000 \text{ per year}. \]

The depreciation over 10 years is:

\[ \text{Depreciation for 10 years} = 48,000 \times 10 = 4,80,000. \]

The book value at the end of the 10^th year is:

\[ \text{Book Value} = \text{Cost of Machinery} - \text{Depreciation for 10 years} = 8,00,000 - 4,80,000 = 3,20,000. \]

Thus, the book value at the end of the 10^th year is Rs. 3,20,000.