On 1st April 2024, person 'X' purchased a machinery costing Rs. 65000 and spent Rs. 10000 on its installation. The estimated effective life of the machinery is 5 years with a scrap value of Rs. 10000. The annual depreciation using the straight-line method with the accounting year ending on 31st March 2025 is:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 13000
The cost of an asset includes the expenses needed to make it ready for use, so the installation charges are added to the cost. Under the straight-line method,
\( \displaystyle \text{Annual depreciation} = \frac{\text{Cost} - \text{Scrap value}}{\text{Useful life}} \)
\(\text{Cost} = 65000 + 10000 = 75000\)
\( \displaystyle \text{Annual depreciation} = \frac{75000 - 10000}{5} = \frac{65000}{5} = 13000 \)
The machinery was bought on 1 April 2024 and the accounting year ends on 31 March 2025, so a full year’s depreciation, Rs. 13000, is charged.