Question

A vehicle whose cost is ₹7,00,000 will depreciate to scrap value of ₹1,50,000 in 5 years. Using linear method of depreciation, the book value of the vehicle at the end of the third year is :

• A. ₹1,10,000
• B. ₹3,70,000
• C. ₹2,70,000
• D. ₹2,50,000

Answer 1

The Correct Option is B

The linear method of depreciation involves decreasing the value of an asset by a fixed amount each year. To find the annual depreciation amount, we follow these steps:

1. Calculate the total depreciable amount, which is the original cost minus the scrap value:
   Depreciable Amount = ₹7,00,000 - ₹1,50,000 = ₹5,50,000
2. Determine the annual depreciation by dividing the depreciable amount by the number of years:
   Annual Depreciation = ₹5,50,000 / 5 = ₹1,10,000
3. Calculate the book value at the end of the third year:
   Book Value End of Year 3 = Original Cost - (3 × Annual Depreciation)
   Book Value End of Year 3 = ₹7,00,000 - (3 × ₹1,10,000) = ₹7,00,000 - ₹3,30,000 = ₹3,70,000

Thus, the book value of the vehicle at the end of the third year is ₹3,70,000.