Example problem on straight line method of depreciation
Example problem on straight line method of depreciation -1
A
company has purchased an equipment whose first cost is Rs. 1,00,000 with an
estimated life of eight years. The estimated salvage value of the equipment at
the end of its lifetime is Rs. 24,000. Determine the depreciation charge and
book value at the end of various years using the straight line method of
depreciation.
Given data
Purchase
price, P = ₹. 1,00,000
Salvage
value, F = ₹. 24,000
Life
of an asset, n = 8 years
Formula used
Dt = (P – F)/n
Bt
= Bt–1 –
Dt
Solution
Dt =
(1,00,000 – 24,000)/8
=
₹. 9,500
|
End of year
|
Depreciation (Dt)
in ₹
|
Book Value
Bt = Bt–1 –
Dt
in ₹
|
|
0
|
|
1,00,000
|
|
1
|
9,500
|
90,500
|
|
2
|
9,500
|
81,000
|
|
3
|
9,500
|
71,500
|
|
4
|
9,500
|
62,000
|
|
5
|
9,500
|
52,500
|
|
6
|
9,500
|
43,000
|
|
7
|
9,500
|
33,500
|
|
8
|
9,500
|
24,000
|
Example problem on straight
line method of depreciation - 2
A
company has purchased an equipment whose first cost is Rs. 2,00,000 with an
estimated life of ten years. The estimated salvage value of the equipment at the
end of its lifetime is Rs. 50,000. Determine the depreciation charge and book
value at the end of 6th year using the straight line method of depreciation.
Given data
Purchase
price, P = ₹. 2,00,000
Salvage
value, F = ₹. 50,000
Life
of an asset, n = 10 years
t
= 6
Formula used
Dt = (P – F)/n
Bt
= P – [t * Dt]
Solution
D6 =
(2,00,000 – 50,000)/10
=
₹. 15,000
B6 =
P – [t * Dt]
= 2,00,000 –
[6 * 15,000]
= ₹. 1,10,000
Result
At
the end of 6th year,
Depreciation charge = ₹. 15,000
Book value = ₹. 1,10,000