Question

A firm purchased a plant for Rs. 40,000. Erection charges amounted to Rs. 2,000. Effective life of the plant is 5 years. Calculate the amount of depreciation per year under straight line method?

Answer 1

Calculation of amount of depreciation = (Original Cost of the asset - Estimated Scrap value) / (Estimated useful life of the asset in year)

Original Cost = Cost of plant + Erection charge 

= 40,000 + 2,000

= 42,000/5 years

= Rs. 8,400.