Question

find out the amount of depreciation for the following case under WDV method for the first 5 years : cost 120000; salvage value Rs. 10000; Rate of depreciation 25%. Round the amount to nearest rupee

Answer 1

ANSWER :

• ✎ Rs. 83,875 (actual amount) or Rs. 84,000 (rounded amount to nearest rupee) is the amount of depreciation under WDV method for the first 5 years if the cost is Rs. 1,20,000; salvage value is Rs. 10,000 and rate of depreciation is 25% p.a.

• ✎ Rs. 26,075 (actual value) or Rs. 26,000 (rounded value to nearest rupee) is the scrap value after charging depreciation for five years @25% p.a.

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SOLUTION :

❒ Given :-

• Cost = Rs. 1,20,000

• Salvage Value = Rs. 10,000

• Rate of Depreciation = 25% p.a.

• No. of years = 5 years

• Method = Written Down Value Method (WDV Method)

❒ To Find :-

• Amount of Depreciation for the five years under WDV method = ?

❒ Calculation :-

• Cost = Rs. 1,20,000

Less : Salvage Value = Rs. 10,000

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• Amount = Rs. 1,10,000

Less : Depreciation @25% p.a. for first year (Rs. 1,10,000 × $\sf{\dfrac{25}{100}}$ ) = Rs. 27,500

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• Value after one year = Rs. 82,500

Less : Depreciation @25% p.a. for second year (Rs. 82,500 × $\sf{\dfrac{25}{100}}$ ) = Rs. 20,625

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• Value after two years = Rs. 61,825

Less : Depreciation @25% p.a. for third year (Rs. 61,825 × $\sf{\dfrac{25}{100}}$ ) = Rs. 15,469

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• Value after three years = Rs. 46,356

Less : Depreciation @25% p.a. for fourth year (Rs. 46,356× $\sf{\dfrac{25}{100}}$ ) = Rs. 11,589

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• Value after four years = Rs. 34,767

Less : Depreciation @25% p.a. for fifth year (Rs. 34,767 × $\sf{\dfrac{25}{100}}$ ) = Rs. 8,692

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• Value after five years = Rs. 26,075

Now,

• ∴ Total amount of depreciation for the five years = Depreciation for the first year + Depreciation for the second year + Depreciation for the third year + Depreciation for the fourth year + Depreciation for the fifth year

➨ Total amount of depreciation for the five years = Rs. 27,500 + Rs. 20,625 + Rs. 15,469 + Rs. 11,589 + Rs. 8,692

➨ Total amount of depreciation for the five years = Rs. 83,875

• Hence, the total amount of depreciation for the five years is Rs. 83,875 and the scrap value after charging depreciation for five years is Rs. 26,075.

Rounding the amount of depreciation for the five years to nearest rupee, we get,

• ∴ Amount of depreciation = Rs. 83,875

➜ Rounded amount of depreciation to nearest rupee = Rs. 84,000

Rounding the scrap value after charging depreciation for the five years to nearest rupee, we get,

• ∴ Scrap value after five years = Rs. 26,075

➜ Rounded value after five years = Rs. 26,000