Question

The pattern of annual depreciation charge of an asset for the three years was Rs. $5000$, Rs. $4500$ and Rs. $4050$. Discuss the rate of depreciation charge.

• A. $15\%$ on WDV
• B. $15\%$ on SLM
• C. $10\%$ on WDV
• D. $90\%$ on WDV

Answer 1

The correct option is C $10\%$ on WDV

Under the SLM method of depreciation, the amount of depreciation is constant over the estimated working life of an asset.

Under the reducing balance method of depreciation, the amount of depreciation reduces every year as the book value of the asset reduces and the depreciation is charged on the book value of the assets.

In the given case, depreciation is reducing every year, that means the organization is following the written down value method @10%

For first year the amount of depreciation is Rs. 5000 which is 10% of Rs.50000.

Accordingly,

Cost of machine Rs.50000

Less: Depreciation @10% Rs. 5000

-----------------

WDV Rs.45000

Less: Depreciation @10% Rs. 4500

----------------

WDV Rs.40500

Less: Depreciation Rs. 4050