7. An office equipment is purchased on 1-1-12 for 1,10,000 having working life of 4 years at the of which is expected to have
a scrap value of
10,000. Find the
difference in depreciation as per Sum of years digit method
and reducing balance method (@25% Wdv) for the year
ending on 31st December, 2012-
A) 25000
B) 40,000 C) 15,000 D) 10,000
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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
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