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The balance of machine on 31st March 2010 is Rs.72,900 (after charging  depreciation of the year). The machine was purchased on 1st April 2007 charging depreciation @10% p.a. by diminishing balance method. The cost price of the machine as on 1st April 2007 would be
  • a)
    Rs. 1,00,000
  • b)
    Rs. 90,000
  • c)
    Rs. 81,000
  • d)
    Rs. 72,900
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
The balance of machine on 31st March 2010 is Rs.72,900 (after charging...
Explanation:

To find the cost price of the machine as on 1st April 2007, we need to calculate the original cost of the machine before charging depreciation.

Given:
Balance of machine on 31st March 2010 = Rs. 72,900 (after charging depreciation of the year)
Depreciation rate = 10% p.a.
Depreciation method = Diminishing balance method

Step 1: Calculate the depreciation charged for the year 2009-2010.

Since the machine was purchased on 1st April 2007, the financial year 2009-2010 will be from 1st April 2009 to 31st March 2010.

Depreciation rate = 10% p.a.
Depreciation charged for the year 2009-2010 = 10% of the balance of machine on 31st March 2010

Depreciation charged for the year 2009-2010 = 10% of Rs. 72,900 = Rs. 7,290

Step 2: Calculate the balance of machine on 1st April 2010.

Balance of machine on 1st April 2010 = Balance of machine on 31st March 2010 - Depreciation charged for the year 2009-2010

Balance of machine on 1st April 2010 = Rs. 72,900 - Rs. 7,290 = Rs. 65,610

Step 3: Calculate the balance of machine on 1st April 2009.

Since the machine was purchased on 1st April 2007, the financial year 2008-2009 will be from 1st April 2008 to 31st March 2009.

Depreciation rate = 10% p.a.
Depreciation charged for the year 2008-2009 = 10% of the balance of machine on 1st April 2009

Balance of machine on 1st April 2009 = Balance of machine on 1st April 2010 + Depreciation charged for the year 2008-2009

Balance of machine on 1st April 2009 = Rs. 65,610 + 10% of Rs. 65,610 = Rs. 72,171

Step 4: Calculate the balance of machine on 1st April 2008.

Since the machine was purchased on 1st April 2007, the financial year 2007-2008 will be from 1st April 2007 to 31st March 2008.

Depreciation rate = 10% p.a.
Depreciation charged for the year 2007-2008 = 10% of the balance of machine on 1st April 2008

Balance of machine on 1st April 2008 = Balance of machine on 1st April 2009 + Depreciation charged for the year 2007-2008

Balance of machine on 1st April 2008 = Rs. 72,171 + 10% of Rs. 72,171 = Rs. 79,388.10

Step 5: Calculate the cost price of the machine as on 1
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The balance of machine on 31st March 2010 is Rs.72,900 (after charging depreciation of the year). The machine was purchased on 1st April 2007 charging depreciation @10% p.a. by diminishing balance method. The cost price of the machine as on 1st April 2007 would bea)Rs. 1,00,000b)Rs. 90,000c)Rs. 81,000d)Rs. 72,900Correct answer is option 'A'. Can you explain this answer?
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