Question

Original cost Rs. $1,26,000$. Salvage value Rs. $6,000$. Find depreciation for 2nd year @ Unit Production Method, if units produced in 2nd year was $10,000$ and total estimated production $50,000$.

• A. $Rs.21,600$
• B. $Rs.22,680$
• C. $Rs.25,200$
• D. $Rs.24,000$

Answer 1

The correct option is D $Rs.24,000$

Production unit method of depreciation :

According to this method, deprciation iks provided at a predetermined rate per unit, which in turn is calculated on the basis of total number of units to be produced during the life of the asset.

Cost of machine = Rs. 126000

Salvage value = Rs. 6000

Estimated number of units to be produced = 50000 units

Therefore, Rate of depreciation per unit = Rs. ( 126000 - 6000) / 50000 units

= Rs. 2.4 per unit

10000 units were produced in 2nd year, therefore depreciation for 2nd year charged will be:

10000 units * Rs. 2.4 per unit = Rs. 24000.