Question

If on January 1, 1983 a plant is purchased for Rs. 1,20,000, its estimated life is ten years and its salvage value is Rs. 10,000 under which one of the following method would be 1983 depreciation be the largest?

• A. Straight line method.
• B. Double-declining balance method.
• C. Sum of the year's digits method.
• D. 15% on original cost.

Answer 1

The correct option is B Double-declining balance method.

Option B is correct. Under straight line method, depreciation would be
Cost price - salvage value / number of estimated life
120000 - 10000/ 10 = 11000

depreciation rate is 10 %
2) Under Double declining method, depreciation rate is ;
Straight line depreciation rate * 2
10* 2 = 20%
120000*20/100 = 24000
3) Depreciation under Sum of year's digits method would be
Sum of years = 55

Depreciation = 1,10,000*10/55 = 20000
4) depreciation as 15 % on original cost
120000*15/100 = 18000.
So depreciation would be largest under double declining method.