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Question
The value of a machine depreciates at a rate of 10% every year. It was purchased 3 years ago. Its present value is Rs.2,18,700/-. What was the purchase price of the machine?
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Solution
Given, the rate of depreciation per annum = r = 10%
Number of years = n = 3
Present value of the machine = P.V.
= ₹ 2,18,700/-
∴ Purchase price of the machine
= P.V ÷ `(1 - "r"/100)^"n"`
= `2,18,700 ÷ (1 - 10/100)^3`
= `2,18,700 ÷ ((9^3)/(10^3))`
= `(2,18,700 xx 1000)/729`
= 3,00,000
∴ The purchase price of the machine is ₹ 3,00,000.
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In accounting, which principle is followed by charging depreciation each year?
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