A machine costing Rs. 38,000 has a useful life of 6 years. If the machine’s value at the end of the third year is Rs. 24,500 using the linear depreciation method, then its scrap value is
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Rs. 11,000
Under the linear (straight line) method, the machine loses the same amount every year.
\( \displaystyle \text{Annual depreciation}=\frac{38000-24500}{3} \)
\( \displaystyle =\frac{13500}{3}=4500 \)
The scrap value is the value at the end of the useful life of 6 years:
\( \displaystyle \text{Scrap value}=38000-6\times 4500 \)
\( \displaystyle =38000-27000=11000 \)
So the scrap value is Rs. 11,000.
Shortcut: Under the linear method the value falls by the same amount in the last three years as in the first three, Rs. 13,500, so the scrap value is 24,500 − 13,500 = Rs. 11,000.