Mr. B.M. Wadhwa purchased a car costing Rs. 20 lakh. It has a useful life of 15 years. The depreciation follows the straight line trend. If the annual depreciation is Rs. 1,20,000, what is the scrap value of the car?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 2 Lakh
In the straight line method the same amount is written off every year:
\( \displaystyle \text{annual depreciation}=\frac{\text{cost}-\text{scrap value}}{\text{useful life}} \)
So the scrap value is
\( \displaystyle \text{scrap value}=\text{cost}-\text{useful life}\times\text{annual depreciation} \)
\( \displaystyle =20{,}00{,}000-15\times 1{,}20{,}000 \)
\( \displaystyle =20{,}00{,}000-18{,}00{,}000 \)
\( \displaystyle =2{,}00{,}000 \)
The scrap value is Rs. 2 lakh.