Depreciation Calculation using Sum of Years Digits Method

Cost of the asset: Rs.1,00,000
Life time: 5 years
Salvage value: 10% or Rs.10,000

Step 1: Calculate the total of the digits
The sum of years digits is calculated by adding the digits in the life of the asset. In this case, it is calculated as follows:

5+4+3+2+1 = 15

Step 2: Calculate the depreciation expense for each year
The depreciation expense for each year is calculated by dividing the remaining life of the asset by the total of the digits and then multiplying the result by the cost of the asset minus the salvage value. The calculation for each year is as follows:

Year 1: (5/15) x (Rs.1,00,000 - Rs.10,000) = Rs.26,667
Year 2: (4/15) x (Rs.1,00,000 - Rs.10,000) = Rs.22,222
Year 3: (3/15) x (Rs.1,00,000 - Rs.10,000) = Rs.16,667
Year 4: (2/15) x (Rs.1,00,000 - Rs.10,000) = Rs.11,111
Year 5: (1/15) x (Rs.1,00,000 - Rs.10,000) = Rs.5,556

Step 3: Calculate the depreciation expense for the 4th year
The depreciation expense for the 4th year is Rs.11,111.

Therefore, the correct option is 4) 12,000.

Explanation
The sum of years digits method is a depreciation method that takes into account the total life of the asset and assumes that the asset will depreciate more in the earlier years of its life. This method is commonly used for assets that have a higher value in their early years, such as cars and machinery. In this method, the depreciation expense for each year is calculated by dividing the remaining life of the asset by the sum of the digits in the life of the asset and then multiplying the result by the cost of the asset minus the salvage value. The depreciation expense for the 4th year is calculated using this formula and is equal to Rs.11,111.

Cost of asset is Rs.100000
life time 5 years
salvage value is 10%
calculate depreciation
100000×10%=10000
Then, 100000-10000=90000

calculate depreciation for 4th year;

90000÷5=18000

Answer = (b) 18000