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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 to the asset is 10 years and 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 C 8%
Depreciation = (Cost price - scrap value)/ Useful life of an asset
Rate of depreciation = Depreciation value/ Cost price of asset
Where,
Cost price = Rs. 50,000, Scrap value = Rs. 10,000, Useful life of asset = 10 years
Depreciation = Rs. (50000 - 10000)/ 10 years
Depreciation = Rs 4000
Rate of depreciation = Rs. (4000 / 50000) * 100
Rate of depreciation = 8%

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