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Question
Calculate the rate of depreciation under straight-line method from the following information:
Purchased second-hand machinery on 1.1.2018 for ₹ 38,000
On 1.1.2018 spent ₹ 12,000 on its repairs
Expected useful life of the machine is 4 years
Estimated residual value ₹ 6,000.
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Solution
Original cost = Purchase of machinery + repair charges
= 38,000 + 12,000
= 50,000
Residual value = 6,000
Estimated life = 4 years
Amount of depreciation = `("Original cost" - "Scrap value")/"Estimates life"`
`= (50,000 - 6,000)/(4 "years")`
`= (44,000)/4`
= ₹ 11,000
Rate of depreciation = `"Amount of depreciaton"/"Original cost" xx 100`
= `(11,000)/(50,000) xx 100`
= 22%
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