Question

The value of a machine, purchased two years ago, depreciates at the annual rate of 10%. If its present value is Rs.97,200, find:

1.   Its value after 2 years.
2.   Its value when it was purchased.

Answer 1

(i) Present value of machine(P) =  Rs.97,200 

Depreciation rate = 10%

∴ Value of machine after 2 years = P`( 1 - r/100)^n`

 = 97,200`( 1 - 10/100 )^2`

= 97,200`(9/10)^2`
= Rs. 78732.

(ii) Present value of machine(A) = Rs.97,200
Depreciation rate = 10% and time = 2 years
To calculate the cost 2 years ago

∴ A = P`( 1 - r/100 )^n`

⇒ 97,200 = P`( 1 - 10/100 )^2`

⇒ 97,200 = P`( 9/10 )^2`

⇒ `97200 = P xx 9/10 xx 9/10` 

⇒ P = `(97200 xx 10 xx 10)/(9 xx 9)`

⇒ P = Rs. 1,20,000