Question

A company purchased new Machine for Rs. $50,000$ on $1$st April and spent Rs. $10,000$ on its installation and Rs. $5,000$ on transportation. The useful life of the machine is estimated $10$years. The firm provides depreciation using sum of years digit method. What is the depreciation for the last year of working life of the machine?

• A. Rs. $936$
• B. Rs. $1,182$
• C. Rs. $1,325$
• D. Rs. $1,013$

Answer 1

Answer: (B)

Rs. $1,182$

Depreciation expense is calculated under sum of year's digit method as:

Depreciation expense = (Remaining useful life of the asset / Sum of the year's digit) x Depreciable cost

Depreciable cost = Purchase cost + Installation cost + Transportation

Depreciable cost = Rs. 50,000 + Rs. 10,000 + Rs. 5,000 = Rs. 65,000

Year	Deprecation base (a)	Remaining life (b)	Depreciation fraction (b/sum)	Depreciation expense	Book value
1	65,000	10	10/55	11,818	53,182
2	65,000	9	9/55	10,636	54,364
3	65,000	8	8/55	9,455	55,545
4	65,000	7	7/55	8,273	56,727
5	65,000	6	6/55	7,091	57,909
6	65,000	5	5/55	5,909	59,091
7	65,000	4	4/55	4,727	60,273
8	65,000	3	3/55	3,545	61,455
9	65,000	2	2/55	2,364	62,636
10	65,000	1	1/55	1,182	63,818
	Total	55