A furniture company buys back its sold items at ₹2,500 per item (having remaining useful life > 3 years at the time of purchase ).
Mr. Mohan had purchased a table and a sofa set costing ₹4,000 and ₹21,000 respectively, having useful life of 10 years each. After 5 years he returns back these two pieces of furniture. The total estimated annual depreciation on the two furniture pieces is :
Answer & explanation
Correct answer: option 3
Cost of table = ₹4000
Cost of sofa set = ₹21000
Total cost = ₹25000
Buy-back value per item = ₹2500
Number of items = 2
Total scrap (buy-back) value = ₹5000
Useful life of each item = 10 years
Total depreciable amount:
$25000 - 5000 = 20000$
Annual depreciation (straight-line method):
$\frac{20000}{10} = 2000$
final answer: Total estimated annual depreciation is ₹2000