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Question

On the basis of the information given below, answer the following question.
Z.Ltd. purchased machine having life of 3 years on 1st April 2008 for Rs 50,000. It is decided to provide for the replacement of the machine at the end of 3 years by setting - up a Sinking fund. Investment will fetch interest at 12 %p.a. Sinking fund tables shows that Rs. 0.296349 invested each year will produce Rs 1 at the end of 3 years at 12 % p.a. The investments are sold for Rs 28,500.
Depreciation to be provided for each year = ?

A
16,666.67
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B
14,817.45
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C
6,371.50
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D
None of the above
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Solution

The correct option is B 14,817.45
Depreciation under sinking fund method = value of machine x annuity value
= RS-50,000 x RS-0.296349
= RS-14,817.45.

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