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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 :
- The rate of depreciation.
- The original cost of the machine.
- Its cost at the end of the third year.
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Solution
(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 1st year = 10% of Rs. 100 = Rs. 10
When the values depreciates by Rs. 10 during the 1st year, Original cost = Rs. 100
⇒ When the depreciation during 1st 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 (1st year + 2nd year + 3rd 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
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