Question

ABC Ltd. acquired a new Machine for Rs. $500,000$ on $1$st April $2012$ 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 year $2013-14$.

• A. Rs. $93,636$
• B. Rs. $89,100$
• C. Rs. $84,272$
• D. Rs. $91,300$

Answer 1

The correct option is C Rs. $84,272$

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. 5,00,000 + Rs. 10,000 + Rs. 5,000 = Rs. 5,15,000

Year	Deprecation base (a)	Remaining life (b)	Depreciation fraction (b/sum)	Depreciation expense	Book value
1	5,15,000	10	10/55	93,636	4,21,364
2	5,15,000	9	9/55	84,273*	4,30,727
3	5,15,000	8	8/55	74,909	4,40,091
4	5,15,000	7	7/55	65,545	4,49,455
5	5,15,000	6	6/55	56,182	4,58,818
6	5,15,000	5	5/55	46,818	4,68,182
7	5,15,000	4	4/55	37,455	4,77,545
8	5,15,000	3	3/55	28,091	4,86,909
9	5,15,000	2	2/55	18,727	4,96,273
10	5,15,000	1	1/55	9,364	5,05,636
	Total	55

Amount vary by Rs. 1 due to rounding.