From the following information, calculate the amount of depreciation for the year 2074 using straight line method and reducing balance method. Particulars Amount (Rs.) Cost of asset 100,000 Salvage…

Solution 1: Straight-Line Method and Reducing Balance Method

Given:

• Cost of asset = Rs. 100,000
• Salvage value = Rs. 10,000
• Useful life = 10 years

1. Straight-Line Method

The formula for depreciation under the straight-line method is:

$$\text{Annual Depreciation}=\frac{\text{Cost of Asset}-\text{Salvage Value}}{\text{Useful Life}}$$

$$=\frac{100,000-10,000}{10}=\frac{90,000}{10}=9,000$$

Depreciation for 2074 = Rs. 9,000

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2. Reducing Balance Method (at 10% per annum)

The formula for depreciation under the reducing balance method is:

$$\text{Annual Depreciation}=\text{Book Value at the Beginning of the Year}\times \text{Rate of Depreciation}$$

Assuming the rate of depreciation is 10% (since not explicitly given, a common rate is used):

• Year 1 (2074): $$\text{Depreciation}=100,000\times 0.10=10,000$$ Book Value at the end of 2074 = 100,000 - 10,000 = Rs. 90,000

Depreciation for 2074 = Rs. 10,000

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Solution 2: Sum-of-the-Years’ Digits Method and Machine Hour Method

Given:

• Cost of asset = Rs. 120,000
• Salvage value = Rs. 20,000
• Useful life = 5 years
• Total machine hours = 10,000
• Machine hours used in 2074 = 2,000

1. Sum-of-the-Years’ Digits Method

The sum of the years’ digits (SYD) for 5 years is:

$$5+4+3+2+1=15$$

The depreciation fraction for the first year (2074) is:

$$\frac{5}{15}=\frac{1}{3}$$

Depreciation for 2074:

$$\text{Depreciation}=\left(\frac{1}{3}\right)\times (120,000-20,000)=\frac{100,000}{3}=33,333.33$$

Depreciation for 2074 = Rs. 33,333.33

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2. Machine Hour Method

The formula for depreciation under the machine hour method is:

$$\text{Depreciation per Machine Hour}=\frac{\text{Cost of Asset}-\text{Salvage Value}}{\text{Total Machine Hours}}$$

$$=\frac{120,000-20,000}{10,000}=\frac{100,000}{10,000}=10$$

Depreciation for 2074 (based on 2,000 hours):

$$\text{Depreciation}=10\times 2,000=20,000$$

Depreciation for 2074 = Rs. 20,000