Question

Vishal purchased a machine costing Rs. 50,000. The estimated useful life of the machine is 10 years with a scrap value of Rs. 5,000. The annual depreciation using linear method is,

• A. Rs. 45,000
• B. Rs. 4,500
• C. Rs. 3500
• D. Rs. 2500

Hint:

Annual depreciation \(=\frac{\text{Cost}-\text{Scrap}}{\text{Life}}\).

Answer 1

The Correct Option is B

Step 1: Understand the method:
In the linear (straight line) method the machine loses the same amount of value every year. Only the part of the cost which will be lost, that is cost minus scrap value, is spread over its life.

Step 2: Recall the formula:
\[ \text{Annual depreciation}=\frac{\text{Cost}-\text{Scrap value}}{\text{Useful life}} \]

Step 3: Calculate:
Depreciable amount \(=50000-5000=45000\).
\[ \frac{45000}{10}=4500 \]

Step 4: Check the options:
Option 1 (45,000) is the total depreciable amount, not the yearly one. Options 3 and 4 do not come from any correct step. If we forgot the scrap value we would get \(\frac{50000}{10}=5000\), which is also not listed.

Final Answer:
The annual depreciation is Rs. 4,500, which is option 2. \[ \boxed{\text{Rs. }4500} \]