A motorcycle has a scrap value of Rs. 22,500 after 15 years of its purchase. If the annual depreciation charge is Rs. 8,500, then the original cost by linear method is:
A motorcycle has a scrap value of Rs. 22,500 after 15 years of its purchase. If the annual depreciation charge is Rs. 8,500, then the original cost by linear method is:
Solution
Given information:
Scrap value after 15 years = Rs. 22,500
Annual depreciation = Rs. 8,500
Time period = 15 years
Under the linear depreciation method, the motorcycle loses Rs. 8,500 in value each year.
Total Depreciation = Annual Depreciation × Number of Years
Total Depreciation = 8,500 × 15
Total Depreciation = Rs. 1,27,500
The relationship between original cost, depreciation, and scrap value:
Original Cost - Total Depreciation = Scrap Value
Original Cost = Scrap Value + Total Depreciation
Original Cost = 22,500 + 1,27,500
Original Cost = Rs. 1,50,000
Therefore, the original cost of the motorcycle is Rs. 1,50,000.
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