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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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