Question

Machine us purchased for 40000 and useful life is 15 years and scrap value is 15000. Rate of interest on depreciation fund is 5%. calculate the rate of depreciation by sinking fund method.​

Answer 1

The rate of depreciation by sinking fund method is 0.0675%

Explanation:

The annual rate of depreciation (K) by sinking fund method is given as:

SV = FC (1 - K)ⁿ

Where,

SV = Savage value = 15000

FC = First cost = 40000

n = Usual life = 15 years

On substituting the values, we get,

40000 = 15000 (1 - K)¹⁵

40000/15000 = (1 - K)¹⁵

2.666 = (1 - K)¹⁵

On taking 15th root, we get,

1.0675 = 1 - K

K = 1 - 1.0675

∴ K = -0.0675%

Minus sign indicates negative depreciation.