The annual depreciation of a car is Rs. 40,000. If the scrap value of the car after 15 years is Rs. 50,000, then the original cost of the car using linear method is
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Rs. 6,50,000
In the linear (straight-line) method the depreciation is the same every year:
\( \displaystyle \text{Annual depreciation} = \frac{\text{Cost} - \text{Scrap value}}{\text{Useful life}} \)
\( \displaystyle 40000 = \frac{C - 50000}{15} \)
\(C - 50000 = 600000\)
\(C = 650000\)
So the original cost is Rs. 6,50,000.