Question

Under the __________ system of depreciation, the amount of depreciation does not change from year to year.

• A. Fixed Instalment
• B. Reducing Balance
• C. Depletion
• D. Machine Hour Rate

Answer 1

Answer: (A)

Fixed Instalment

Depreciation is a reduction in the value of fixed asset due to normal wear & tear, usage and obsolescence. Depreciation is a charge on profit & loss account, and debited to profit & loss account.

There are various method of depreciation. Most commonly used methods are fixed installment method and written down value method.

Under fixed installment method, amount of depreciation does not change and it is fixed year to year.

For example: Cost of machine is Rs.50000, scrap value Rs.5000, estimated life of machine is 5 years. Depreciation will be calculated as under:

Depreciation = Cost of Machine - Scrap Value

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Estimated Life of Machine

= Rs.50000 - Rs.5000

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5 yrs

Depreciation per year will be Rs.9000.