A machine costs ₹5 20 000 with an estimated life of 25 yea? A sinking ...
Calculation of Sinking Fund Amount
Given:
- Cost of machine = ₹5,20,000
- Life of machine = 25 years
- New machine cost after 25 years = 25% higher
- Scrap value realization = ₹25,000
- Interest rate = 3.5%
- Annual sinking fund investment
Step 1: Calculate the cost of the new machine after 25 years
New machine cost = ₹5,20,000 * 1.25 = ₹6,50,000
Step 2: Calculate the total amount needed after 25 years
Total amount needed = New machine cost - Scrap value realization
Total amount needed = ₹6,50,000 - ₹25,000 = ₹6,25,000
Step 3: Calculate the sinking fund amount to be set aside every year
Using the sinking fund formula:
S = A * [(1 + r)^n - 1] / r
Where:
S = Total amount needed
A = Annual sinking fund investment
r = Interest rate
n = Number of years
₹6,25,000 = A * [(1 + 0.035)^25 - 1] / 0.035
₹6,25,000 = A * [2.167 - 1] / 0.035
₹6,25,000 = A * 1.167 / 0.035
A = ₹6,25,000 / 1.167 / 0.035
A ≈ ₹16,500
Therefore, the amount that should be set aside every year as a sinking fund investment is approximately ₹16,500.
Conclusion:
The correct answer is (b) 16500.
To make sure you are not studying endlessly, EduRev has designed CA Foundation study material, with Structured Courses, Videos, & Test Series. Plus get personalized analysis, doubt solving and improvement plans to achieve a great score in CA Foundation.