A company has purchased a plant for Rs. 10,00,000 with a useful life of 6 years. It expects that Rs. 15,00,000 will be required to replace the plant after 6 years. To ensure that money is available at the time of replacement, the company has created a sinking fund. You are required to determine the amount to be deposited annually, if the fund earns interest at 8% per annum.
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Explanation:
Correct option is B)
As per question
Cost of Plant = Rs 50,000
Useful life = 10 years
Residual value = Rs 5000
Depreciation = Cost-Residual value/Estimated useful life
=50,000-5,000/10
=45000/10
=4500
Also,
rate of depreciation = Annual depreciation/cost of plant x 100
= 4500/50,000 x 100
= 9%
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