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Question
A company purchased a building for ₹ 50,000. The useful life of the building is 10 years and the residual value is ₹ 5,000. Find out the amount and rate of depreciation under the straight-line method.
Solution
Calculation of the amount of depreciation:
Original cost = ₹ 50,000
residual value = ₹ 5,000
Estimated life = 10 years
Amount of depreciation = `("Original cost" - "Scrap value")/"Estimates life"`
= `(50,000 - 5,000)/(10 "years")`
= `(45,000)/10`
= ₹ 4,500
Calculation of rate of depreciation:
Rate of depreciation = `"Amount of depreciaton"/"Original cost" xx 100`
`= (4,500)/(50,000) xx 100`
= 9 %
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