Question

Initial cost of an asset is Rs. 100,000/-. It is estimated that at the end of its economic life of 5 years, its scrap value will be Rs. 5,000/-. Calculate its book value after one year.

(a) Rs. 90,000
(b) Rs. 85,000
(c) Rs. 81,000
(d) Rs. 81,000

Answer 1

To calculate the book value after one year, we subtract the depreciation expense for the first year from the initial cost of the asset. In this case, the book value after one year is Rs. 81,000.

Step-by-step explanation:

Book value is the initial cost of an asset minus its accumulated depreciation. To calculate the book value after one year, we need to determine the depreciation expense for the first year.

The asset has an initial cost of Rs. 100,000 and an estimated scrap value of Rs. 5,000 at the end of its 5-year economic life. This means that the asset will depreciate by Rs. (100,000 - 5,000) / 5 = Rs. 19,000 per year.

After one year, the depreciation expense will be Rs. 19,000. To calculate the book value, we subtract this depreciation expense from the initial cost: Rs. 100,000 - Rs. 19,000 = Rs. 81,000.