Question

3. An automobile company has purchased a wheel alignment device for Rs. 10,00.000. The device can be used for 15 years. The salvage value at the end of the life of the device is 10% of the purchase value. Find the following using the double declining balance method of depreciation: (a) Depreciation at the end of the seventh year (6) Depreciation at the end of the twelfth year (c) Book value at the end of the eighth year 4. In a particular locality of a state, presently, the vehicle users take a roundabout route to reach certain places because of the presence of a river. This results in excessive time of travel and increased fuel cost. So, the state government is planning to construct a bridge across the river. The estimated initial investment for constructing the bridge is Rs. 40,00,000. The estimated life of the bridge is 15 years. The annual operation and maintenance cost is Rs. 2,50.000. The value of fuel savings due to the construction of the bridge is Rs. Page 1 of 2 6,00.000 in the first year and it increases by Rs. 50.000 every year thereafter till the end of the life of the bridge. Check whether the project is justified based on BC ratio by assuming an interest rate of 20%, compounded annually.

Answer 1

As HOMEWORKLIB's policy first question is answered.

3. Depreciation rate = 100/15 => 6.66%

Hence Double rate of depreciation = 6.66 * 2 => 13.33%

	Depreciation rate	13.33%
Year	Opening Balance	Depreciation	Closing Balance
1	10,00,000	1,33,333	8,66,667
2	8,66,667	1,15,556	7,51,111
3	7,51,111	1,00,148	6,50,963
4	6,50,963	86,795	5,64,168
5	5,64,168	75,222	4,88,946
6	4,88,946	65,193	4,23,753
7	4,23,753	56,500	3,67,252
8	3,67,252	48,967	3,18,285
9	3,18,285	42,438	2,75,847
10	2,75,847	36,780	2,39,068
11	2,39,068	31,876	2,07,192
12	2,07,192	27,626	1,79,566
13	1,79,566	23,942	1,55,624
14	1,55,624	20,750	1,34,874
15	1,34,874	17,983	1,16,891

a. Depreciation at the end of 7th year = 56,500.

b. Depreciation at the end of 12th year = 21,626.

c. Book Value at the end of 8th year = 318,285.

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