A piece of machinery costing Rs 25000 is expected to have a useful life of 4 years and a scrap value of zero. Find the annual depreciation charge using the sum of the years digits method.
Answer & explanation
Correct answer: option 4
The correct answer is option (2) : ₹10000, ₹ 7500, ₹ 5000 and ₹ 2500
Given that original cost of annual asset $=₹25000$
Useful life = 4 years
Sum of years digits = $ 1+ 2+ 3 + 4 = 10$
Depreciation schedule
| Years | Digit of the year in rev order | Frac of the asset to be depreciation | Annual depreciation (in ₹) | Accumulation depreciation (in ₹ ) |
| 1 | 4 | 4/10 | (4/10) ×25000= 10000 | 10000 |
| 2 | 3 | 3/10 | (3/10)×25000= 7500 | 17500 |
| 3 | 2 | 2/10 | (2/10)×25000= 5000 | 22500 |
| 4 | 1 | 1/10 | (1/10)×25000= 2500 | 25000 |
So, annual depreciation are ₹10000, ₹7500, ₹5000 and ₹ 2500