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A machine costs a company ` 52,000 and its effective life is estimated to be 25 years. A sinking fund is created for replacing the machine by a new model at the end of its life time, when its scrap will realize a sum of ` 2,500 only. The price of the new model is estimated to be 25% higher than the price of the present one. Find what amount should be set aside every year out of the profits for the sinking fund, if it accumulates at 3.5% per annum.?
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A machine costs a company ` 52,000 and its effective life is estimated...
Calculation of Annual Amount for Sinking Fund
Given:
Cost of the machine = `52,000
Effective life of the machine = 25 years
Scrap value of the machine = `2,500
Price of the new model = 25% higher than the present one
Interest rate for sinking fund = 3.5% per annum
Step 1: Calculation of Cost of the New Model
The price of the new model is estimated to be 25% higher than the price of the present one.
Price of the new model = `52,000 + 25% of `52,000
Price of the new model = `52,000 + 0.25 x `52,000
Price of the new model = `52,000 + `13,000
Price of the new model = `65,000
Step 2: Calculation of Annual Depreciation
The annual depreciation of the machine can be calculated using the formula:
Annual Depreciation = (Cost of the machine - Scrap value) / Effective life
Annual Depreciation = (`52,000 - `2,500) / 25
Annual Depreciation = `49,500 / 25
Annual Depreciation = `1,980
Step 3: Calculation of Annual Amount for Sinking Fund
The sinking fund accumulates at an interest rate of 3.5% per annum.
The formula to calculate the annual amount for sinking fund is:
Annual Amount = Annual Depreciation x (1 + Interest Rate)^Effective life - Scrap value
Annual Amount = `1,980 x (1 + 3.5%)^25 - `2,500
Annual Amount = `1,980 x (1 + 0.035)^25 - `2,500
Annual Amount = `1,980 x (1.035)^25 - `2,500
Annual Amount = `1,980 x 1.98508 - `2,500
Annual Amount = `3,923.98 - `2,500
Annual Amount = `1,423.98
Conclusion:
The company should set aside `1,423.98 every year out of the profits for the sinking fund in order to replace the machine with a new model at the end of its effective life. This will ensure that the company has enough funds to purchase the new model without affecting its financial stability.
Given:
Cost of the machine = `52,000
Effective life of the machine = 25 years
Scrap value of the machine = `2,500
Price of the new model = 25% higher than the present one
Interest rate for sinking fund = 3.5% per annum
Step 1: Calculation of Cost of the New Model
The price of the new model is estimated to be 25% higher than the price of the present one.
Price of the new model = `52,000 + 25% of `52,000
Price of the new model = `52,000 + 0.25 x `52,000
Price of the new model = `52,000 + `13,000
Price of the new model = `65,000
Step 2: Calculation of Annual Depreciation
The annual depreciation of the machine can be calculated using the formula:
Annual Depreciation = (Cost of the machine - Scrap value) / Effective life
Annual Depreciation = (`52,000 - `2,500) / 25
Annual Depreciation = `49,500 / 25
Annual Depreciation = `1,980
Step 3: Calculation of Annual Amount for Sinking Fund
The sinking fund accumulates at an interest rate of 3.5% per annum.
The formula to calculate the annual amount for sinking fund is:
Annual Amount = Annual Depreciation x (1 + Interest Rate)^Effective life - Scrap value
Annual Amount = `1,980 x (1 + 3.5%)^25 - `2,500
Annual Amount = `1,980 x (1 + 0.035)^25 - `2,500
Annual Amount = `1,980 x (1.035)^25 - `2,500
Annual Amount = `1,980 x 1.98508 - `2,500
Annual Amount = `3,923.98 - `2,500
Annual Amount = `1,423.98
Conclusion:
The company should set aside `1,423.98 every year out of the profits for the sinking fund in order to replace the machine with a new model at the end of its effective life. This will ensure that the company has enough funds to purchase the new model without affecting its financial stability.
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A machine costs a company ` 52,000 and its effective life is estimated to be 25 years. A sinking fund is created for replacing the machine by a new model at the end of its life time, when its scrap will realize a sum of ` 2,500 only. The price of the new model is estimated to be 25% higher than the price of the present one. Find what amount should be set aside every year out of the profits for the sinking fund, if it accumulates at 3.5% per annum.?
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A machine costs a company ` 52,000 and its effective life is estimated to be 25 years. A sinking fund is created for replacing the machine by a new model at the end of its life time, when its scrap will realize a sum of ` 2,500 only. The price of the new model is estimated to be 25% higher than the price of the present one. Find what amount should be set aside every year out of the profits for the sinking fund, if it accumulates at 3.5% per annum.? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A machine costs a company ` 52,000 and its effective life is estimated to be 25 years. A sinking fund is created for replacing the machine by a new model at the end of its life time, when its scrap will realize a sum of ` 2,500 only. The price of the new model is estimated to be 25% higher than the price of the present one. Find what amount should be set aside every year out of the profits for the sinking fund, if it accumulates at 3.5% per annum.? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A machine costs a company ` 52,000 and its effective life is estimated to be 25 years. A sinking fund is created for replacing the machine by a new model at the end of its life time, when its scrap will realize a sum of ` 2,500 only. The price of the new model is estimated to be 25% higher than the price of the present one. Find what amount should be set aside every year out of the profits for the sinking fund, if it accumulates at 3.5% per annum.?.
A machine costs a company ` 52,000 and its effective life is estimated to be 25 years. A sinking fund is created for replacing the machine by a new model at the end of its life time, when its scrap will realize a sum of ` 2,500 only. The price of the new model is estimated to be 25% higher than the price of the present one. Find what amount should be set aside every year out of the profits for the sinking fund, if it accumulates at 3.5% per annum.? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A machine costs a company ` 52,000 and its effective life is estimated to be 25 years. A sinking fund is created for replacing the machine by a new model at the end of its life time, when its scrap will realize a sum of ` 2,500 only. The price of the new model is estimated to be 25% higher than the price of the present one. Find what amount should be set aside every year out of the profits for the sinking fund, if it accumulates at 3.5% per annum.? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A machine costs a company ` 52,000 and its effective life is estimated to be 25 years. A sinking fund is created for replacing the machine by a new model at the end of its life time, when its scrap will realize a sum of ` 2,500 only. The price of the new model is estimated to be 25% higher than the price of the present one. Find what amount should be set aside every year out of the profits for the sinking fund, if it accumulates at 3.5% per annum.?.
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A machine costs a company ` 52,000 and its effective life is estimated to be 25 years. A sinking fund is created for replacing the machine by a new model at the end of its life time, when its scrap will realize a sum of ` 2,500 only. The price of the new model is estimated to be 25% higher than the price of the present one. Find what amount should be set aside every year out of the profits for the sinking fund, if it accumulates at 3.5% per annum.?, a detailed solution for A machine costs a company ` 52,000 and its effective life is estimated to be 25 years. A sinking fund is created for replacing the machine by a new model at the end of its life time, when its scrap will realize a sum of ` 2,500 only. The price of the new model is estimated to be 25% higher than the price of the present one. Find what amount should be set aside every year out of the profits for the sinking fund, if it accumulates at 3.5% per annum.? has been provided alongside types of A machine costs a company ` 52,000 and its effective life is estimated to be 25 years. A sinking fund is created for replacing the machine by a new model at the end of its life time, when its scrap will realize a sum of ` 2,500 only. The price of the new model is estimated to be 25% higher than the price of the present one. Find what amount should be set aside every year out of the profits for the sinking fund, if it accumulates at 3.5% per annum.? theory, EduRev gives you an
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