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A company purchased a vehicle for Rs.6000. It will be used for 5 years and its residual value is expected to be Rs.1000. What is the annual amount of depreciation using straight line method of depreciation?

A company purchased a vehicle for Rs.6000. It will be used for 5 years and its residual value is expected to be Rs.1000. What is the annual amount of depreciation using straight line method of depreciation? Correct Answer Rs. 1000

Cost of the asset = Rs. 6,000Salvage Value = Rs. 1,000Total Depreciation Cost = Cost of asset – Salvage Value = 6000 – 1000 = Rs. 5000Useful life of the asset = 5 yearsThus, annual depreciation cost = (Cost of asset – Salvage Cost)/Useful Life = 5000/5 = Rs. 1000.

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