Subtopic: Cost analysis of implements and tractors
Question Statement:
The purchase price of a tractor is Rs. 5,50,000. Useful life is 10 years and salvage value is 10% of the purchase price. Following the sum-of-the-years-digits method, the depreciation in the 3rd year in Rs. is ______.
Official Answer Key:
72000 to 72000
Step-by-Step Solution & Explanation
Salvage value S = 0.10 × 5,50,000 = Rs. 55,000. Depreciable base = P − S = 5,50,000 − 55,000 = Rs. 4,95,000.
Sum of years' digits for n = 10: SOYD = n(n+1)/2 = 10×11/2 = 55.
For the 3rd year, the remaining-life weighting factor = (n − year + 1)/SOYD = (10 − 3 + 1)/55 = 8/55.
Depreciation (year 3) = 4,95,000 × (8/55) = Rs. 72,000. Answer: exactly 72,000.
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