Madan Engineers Ltd. purchased a new office equipment on $1$ st January for Rs. $50, 000$ on lease basis. The company intends to provide for renewal of lease at the end of $5$ years by setting up depreciation fund which may be invested outside the business which will yield interest at $5 %$ . Sinking fund table shows Rs. $0.2309$ invested every year will provide Re. $1$ at the end of $5$ years at $5 %$ interest. How much should be transferred to depreciation fund A/c every year in order to provide for renewal of the plant at the end of $5$ years.

R s . 11, 800

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R s . 12, 900

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R s . 11, 550

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R s . 12, 100

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Solution

The correct option is B $R s . 11, 550$
Annuity factor = 0.230975
The amount transferred to depreciation fund a/c p.a. = Rs. 50,000 x 0.230975 = Rs. 11,548.75*
*difference is due to rounding of factor.

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Q. What amount should be transferred annually to depreciation fund a/c if the cost of the plant is Rs.