On using reducing balance method on an asset of Rs. 20,000 at the rate of 10% per annum, depreciation of 3rd year will be:

Rs. 6,000

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Rs. 1,800

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Rs. 1,620

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Rs. 2,000

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Solution

The correct option is B Rs. 1,620
In Written down value or reducing balance method, depreciation is charged on the balance value of assets in the next year. This is calculated as:

Original Cost Rs.20000
Depreciation @10% (First Year) Rs. 2000
------------------
Written Down Value Rs.18000
Depreciation @10% (Second Year) Rs. 1800
-------------------
Written Down Value Rs.16200
Depreciation @10% (Third Year) Rs. 1620

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