A machine is depreciated at the rate of 20% on reducing balance. The o...
Given Information:
- Original cost of the machine: Rs 100,000
- Scrap value of the machine: Rs 30,000
- Depreciation rate: 20% on reducing balance
Calculating Effective Life of the Machine:
1. Calculate the depreciation amount for the first year:
- Depreciation for the first year = 20% of Rs 100,000 = Rs 20,000
- Book value at the end of the first year = Rs 100,000 - Rs 20,000 = Rs 80,000
2. Calculate the depreciation amount for the second year:
- Depreciation for the second year = 20% of Rs 80,000 = Rs 16,000
- Book value at the end of the second year = Rs 80,000 - Rs 16,000 = Rs 64,000
3. Continue this process until the book value reaches the scrap value of Rs 30,000:
- Book value at the end of the third year = Rs 51,200
- Book value at the end of the fourth year = Rs 40,960
- Book value at the end of the fifth year = Rs 32,768
4. The effective life of the machine is the number of years it takes for the book value to reach the scrap value. In this case, it takes approximately 4.5 years for the book value to reach Rs 30,000.
Therefore, the effective life of the machine is approximately 4.5 years.
Final Answer: (a) 4.5 years (approx)
A machine is depreciated at the rate of 20% on reducing balance. The o...
Approx 5.4 yrs
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