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A motorbike costing Rs. 1,25,000 has a scrap value of Rs. 25,000. If the annual depreciation charge is Rs. 12,500, then the useful life of the bike is(by using linear method):

Solution

✅ Correct Option: 2

The motorbike has:

  • Original cost = Rs. 1,25,000
  • Scrap value = Rs. 25,000
  • Annual depreciation = Rs. 12,500

Total depreciation is the total value lost over the bike's entire life:

Total Depreciation = Original Cost - Scrap Value

Total Depreciation = Rs. 1,25,000 - Rs. 25,000

Total Depreciation = Rs. 1,00,000


In linear depreciation method, the asset loses the same value each year.

Useful Life = Total DepreciationAnnual Depreciation\dfrac{\text{Total Depreciation}}{\text{Annual Depreciation}}

Useful Life = Rs. 1,00,000Rs. 12,500\dfrac{\text{Rs. 1,00,000}}{\text{Rs. 12,500}}

Useful Life = 88 years


Therefore, the useful life of the bike is 8 years.

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