Question

A new machine costing Rs. 2 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. 20,000. The production plan for the next 5 years are as follows:
Year I 5,000 units,
Year II 10,000 units,
Year III 12,000 units,
Year IV 20,000 units,
Year V 25,000 units.
The depreciation for the 4 years under the units-of-production method will be_______.

• A. Rs. 12,500
• B. Rs. 25,000
• C. Rs. 30,000
• D. Rs. 50,000

Answer 1

The correct option is D Rs. 50,000

Depreciation = Depreciable value x production units

---------------------------------------------------------

Total production units

= 1,80,000 x 20,000

---------------------------

72,000 (WN)

= RS-50,000.

Working note:-

Total production hours

= 5,000 + 10,000 + 12,000 + 20,000 + 25,000

= 72,000 units