Question

The cost of a machine having a span of life of $5$ years is $Rs1,00,000$.

It has a scrap value of $Rs10,000$.

The amount of depreciation under the sum of years, digit method will be ______________.

• A. $Rs.16,000$
• B. $Rs.18,000$
• C. $Rs.25,000$
• D. $Rs.30,000$

Answer 1

Answer: (D)

$Rs.30,000$

Sum of year digit method of depreciation is a form of accelerated depreciation.

Steps for calculation of depreciation are as follows:

• Sum of years to be calculated = 1+2+3+4+5=15
  
• Divide 100% by (Number of years*2) to find out the rate of depreciation =100%/5*2= 30%
• Rate of depreciation to be applied on the original cost = 30%
• Depreciation = Rs.30000 (30% of Rs.100000)

OR

Using formula:

Depreciation = [Remaining useful life/Sum of years * Depreciable cost]

= [5/15 * (1,00,000-10,000)]

= [5/15 * 90,000]

= 30,000