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On 1st April 2024, person 'X' purchased a machinery costing ₹ 65000 and spent ₹ 10000 on its installation. The estimated effective life of the machinery is 5 years with a scrap value of ₹ 10000. The annual depreciation using the straight-line method with the accounting year ending on 31st March 2025 is:

Solution

✅ Correct Option: 3

The total cost of machinery includes both the purchase price and installation cost.

Total Cost =65,000+10,000= 65,000 + 10,000

Total Cost =75,000= 75,000


The depreciable amount is the difference between the total cost and the scrap value.

Depreciable Amount =75,000−10,000= 75,000 - 10,000

Depreciable Amount =65,000= 65,000


Under the straight-line method, the depreciable amount is divided equally over the useful life of the asset.

Annual Depreciation =Depreciable AmountUseful Life= \dfrac{\text{Depreciable Amount}}{\text{Useful Life}}

Annual Depreciation =65,0005= \dfrac{65,000}{5}

Annual Depreciation =13,000= 13,000

Therefore, the annual depreciation is ₹13,000.

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