Question

Purchase Price of Machine Rs. 1,50,000, Installation charges Rs. 50,000, Residual values Rs. 81,920, the rate of depreciation under WDV Method is 20%. The useful life of machine is:

• A. 6 years
• B. 5 years
• C. 4 years
• D. None of these

Answer 1

The correct option is C 4 years

Total cost of machinery = Rs 1,50,000 + Rs 50,000 = 2,00,000

Calculation of depreciation

Depreciation for 1^st year

2,00,000@20% = 40,000

Depreciation for 2^nd Year

160000(2,00,000-40,000)@20% = 32,000

Depreciation for 3^rd year

1,28,000(1,60,000-32,000)@20% = 25000

Depreciation for 4^th year

1,02,000(1,28,000-25000)@20% = 20,480

Which implies that the residual value of the asset at the end of 4^th year is Rs 81920 (1,02,000-20,480)

Hence the estimated useful life of the asset is 4 years