Question

A machine is purchased for Rs.6,25,000. Its value depreciates at the rate of 10% p.a then its value after 2 years will be​

Answer 1

Answer:

Rs.5,06,250

Step-by-step explanation:

Depreciation is like compound interest with the following basic differences:

1. Rate of interest per cent per year = Rate of depreciation per cent per year

2. In compound interest, the value of the initial amount increases whereas in depreciation, the value decreases (or depreciates).

Note: You can also think of depreciation as compound interest with a negative rate of interest.

Calculations:

P = initial value in Rupees = 625000

R = rate of depreciation per cent per year = 10

T = time period in years = 2

A = depreciated value at the end of time period T

A = P*(1 - R/100)^T          [Note the "-" sign, in CI calculation, it is "+"]

  = 625000*(1 - 10/100)^2

  = 625000*(1 - 0.1)^2

  = 625000*(0.9)^2

   = 625000*(0.81)

   = 506250

Answer: The value of the machine after two years is Rs.5,06,250. This value is called the depreciated value.