Question

A second hand car purchased for Rs. $200,000$ (excluding initial repair cost Rs. $50,000$) is sold for Rs. $100,000$ after $2$ years. If the car was sold at a loss of Rs. $60,000$, what is the rate and method of depreciation charged.

• A. $10\%$ SLM
• B. $20\%$ SLM
• C. $20\%$ WDV
• D. $15\%$ WDV

Answer 1

The correct option is C $20\%$ WDV

Car sold at a loss of Rs. 60,000 and the selling price is Rs. 1,00,000 i.e. the book value after 2 years is Rs. 1,00,000 + Rs. 60,000 = Rs. 1,60,000

Depreciable cost of the car = Rs. 2,00,000 + Rs. 50,000 = Rs. 2,50,000

Total amount of depreciation charged = Rs. 2,50,000 - Rs. 1,60,000 = Rs. 90,000

1st year depreciation = Rs. 2,50,000 x 20% = Rs. 50,000, Book value = Rs. 2,50,000 - Rs. 50,000 = Rs. 2,00,000

2nd year depreciation = Rs. 2,00,000 x 20% = Rs. 40,000, Book value = Rs. 2,00,000 - Rs. 40,000 = Rs. 1,60,000

Hence the car is depreciated at 20% WDV.