If the price of a machinery costing Rs. 25000 is expected to have a useful life of 4 years and a scrap value of Rs. 5000. Then the annual depreciation by linear method is:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 5000
In the linear (straight line) method, the cost less the scrap value is spread equally over the useful life:
\( \displaystyle \text{Annual depreciation} = \frac{\text{Cost} - \text{Scrap value}}{\text{Useful life}} \)
\( \displaystyle = \frac{25000 - 5000}{4} = \frac{20000}{4} = 5000 \)
So the annual depreciation is Rs. 5000.