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Straight Line Method(SLM)

An asset is p...

Question

An asset is purchased for Rs. $50, 000$ on which depreciation is to be provided annually according to the straight line method. The useful life of the asset is 10 years ad the residual value is Rs. $10, 000$ . The rate of depreciation is _____________.

A

20

%

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B

18

%

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C

10

%

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D

8

%

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Solution

The correct option is D $8$ %
According to straight line method, the amount of yearl -depreciation is calculated as follows:
Depreciation = (Cost of asset - Scrap value) / Estimated life and,
Depreciation = Rs. ( 50000 - 10000 ) / 10
Depreciation = Rs. 4000
Depreciation rate = (Depreciation expense / Cost of asset) * 100
Depreciation rate = (Rs. 4000 / Rs. 50000 ) * 100
Depreciation rate = 8%

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