Question

The cost of a machine having a span of life of $5$ years is $Rs.1,00,000$. It has a scrap value of $Rs.10,000$. 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

The correct option is D $Rs.30,000$

Sum of year's digit method :

it is variation of the "Reducing Balance Method". In this case, the annual depreciation is calculated by multiplying the original cost of the asset less its estimated scrap value by the fraction represented by:

(The no. of years of remaining life of the asset) / [(n(n+1) /2]

where, n = no. of years

= 5/[ (5*6)/2]

= 5/15

The depreciation to be written off in first year is :

(Rs.100000 - Rs. 10000) * (5/15) = Ra. 90000 * (5/15) = Rs. 30000