Question

The cost of a machine depreciated by Rs. 4,000 during the first year and by Rs. 3,600 during the second year. Calculate :

1. The rate of depreciation.
2. The original cost of the machine.
3. Its cost at the end of the third year.

Answer 1

(i) Difference between depreciation in value between the first and second years Rs. 4,000 - Rs. 3,600 = Rs. 400.

⇒ Depreciation of one year on Rs. 4,000 = Rs. 400

⇒ Rate of depreciation = `400/4000 xx 100%` = 10%

(ii) Let Rs. 100 be the original cost of the machine.

Depreciation during the 1^st year = 10% of Rs. 100 = Rs. 10

When the values depreciates by Rs. 10 during the 1^st year, Original cost = Rs. 100

⇒ When the depreciation during 1^st year = Rs. 4,000

Original Cost = `100/10 xx 4000` = Rs. 40,000

The original cost of the machine is Rs. 40,000.

(iii) Total depreciation during all the three years

= Depreciation in value during (1^st year + 2^nd year + 3^rd year)

= Rs. 4,000 + Rs. 3,600 + 10% of (Rs. 40,000 - Rs. 7,600)

= Rs. 4,000 + Rs. 3,600 + Rs. 3,240

= Rs. 10,840

The cost of the machine at the end of the third year

= Rs. 40,000 - Rs. 10,840 = Rs. 29,160