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Question

An asset was purchased for Rs. 12,500 and under the reducing balance method 20 percent of the reducing value of the asset is written off each year. What is the value of the asset at the end of three years?

A
Rs.8,000
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B
Rs.7,500
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C
Rs.6,400
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D
Rs.5,000
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Solution

The correct option is D Rs.6,400

Calculation of the value of asset at the end of three years under written down value method:

Cost of the asset Rs. 12500

Less : Depreciation @ 20% Rs. (2500)

Written down value at the end of first year Rs. 10000

Less : Depreciation @ 20% Rs (2000)

Written down value at the end of second year Rs. 8000

Less : Depreciation @ 20% Rs. (1600)

Written down value at the end of third year Rs. 6400


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