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    Question

    The cost of a machine with life of 10 years was Rs.12 lakh with no salvage value expected at the end of the life of the machine. However, after 5 years, the life of the machine increased by 3 years by incurring refurbishment cost of Rs.1,20,000. What would be the depreciation in the 6th year of this machine?

    A Rs.1,20,000 Correct Answer Incorrect Answer
    B Rs.1,00,000 Correct Answer Incorrect Answer
    C Rs.90,000 Correct Answer Incorrect Answer
    D Rs.60,000 Correct Answer Incorrect Answer
    E Rs.1,60,000 Correct Answer Incorrect Answer

    Solution

    Original depreciation rate = 12,00,000/10 = Rs.1,20,000 per year Total depreciation in 5 years = 5*1,20,000 = 6,00,000 Remaining value of machine = Rs.12,00,000 – 6,00,000 = Rs.6,00,000 Revised cost after refurbishment = 600000 + 120000 = 720,000 Revised life = 5+3 = 8 years Depreciation in 6th year and thereafter = 7,20,000/8 = Rs.90,000 per year  

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