Question

A new machine costing Rs. $1$ lakh was purchased by a company to manufacture a special product. Its useful life is estimated to be $5$ years and scrap value at Rs. $10,000$. The production plan for the next 5 years using the above machine is as follows:
Year 1 $5,000$ unit
Year 2 $10,000$ unit
Year 3 $12,000$ unit
Year 4 $20,000$ unit
Year 5 $25,000$ unit
Calculate amount of Depreciation for 5 years using production unit method.

Answer 1

Depreciation rate = Original cost – Salvage value / Total estimated output units

Depreciation Rate= (100000 - 10000) / 72000 = 1.25

Depreciation Year 1 = 5000 x 1.25 = 6250

Depreciation Year 2 = 10000 x 1.25 = 12500

Depreciation Year 3 = 12000 x 1.25 = 15000

Depreciation Year 4 = 20000 x 1.25 = 25000

Depreciation Year 5 = 25000 x 1.25 = 31250