CA Foundation · Accounting · Depreciation and Amortisation
Bharat Textiles buys a machine for ₹5,00,000. It expects the machine to last 9 years and to fetch a residual value of ₹50,000 at the end. Under the straight-line method, what is the annual depreciation?
Annual depreciation is ₹50,000. The straight-line method spreads the depreciable amount, which is cost minus residual value (₹4,50,000), equally over the 9-year useful life. Using the full cost of ₹5,00,000 without deducting the residual value would wrongly give ₹55,556.
- A₹50,000Correct
- B₹55,556
- C₹45,000
- D₹5,00,000
Explanation
Depreciable amount = cost less residual value = 5,00,000 − 50,000 = 4,50,000. Dividing by 9 years gives ₹50,000 a year. The figure ₹55,556 is wrong because it divides the full cost by 9 and ignores the residual value.
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