A vehicle has a scrap value of Rs. 6,50,000 after 10 years of its purchase. If the annual depreciation charge is Rs. 35,000, then the original cost of the vehicle is:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Rs. 10,00,000
A fixed depreciation charge every year is the linear (straight line) method:
\( \displaystyle \text{Annual depreciation} = \frac{\text{Cost} - \text{Scrap value}}{\text{Useful life}} \)
So
\(\text{Cost} = \text{Scrap value} + \text{Useful life} \times \text{Annual depreciation}\)
\(= 6{,}50{,}000 + 10 \times 35{,}000\)
\(= 6{,}50{,}000 + 3{,}50{,}000 = 10{,}00{,}000\)
The original cost is Rs. 10,00,000.