Question

A car costing ₹8,00,000 has scrap value of ₹3,00,000. If the book value of car at the end of fourth year is ₹6,00,000, then the useful life of the car is:

• A. 6 years
• B. 12 years
• C. 10 years
• D. 8 years

Answer 1

The Correct Option is C

To find the useful life of the car, we need to determine the rate of depreciation and then use it to calculate the total years required for depreciation. Given:

• Original cost of the car = ₹8,00,000
• Scrap value of the car = ₹3,00,000
• Book value at the end of 4th year = ₹6,00,000

First, calculate the annual depreciation:

Annual depreciation = (Initial cost - Book value after 4 years) / 4 = (₹8,00,000 - ₹6,00,000) / 4 = ₹50,000 per year

Using this rate, calculate the total years needed to reduce the value to the scrap value:

Useful life = (Initial cost - Scrap value) / Annual depreciation = (₹8,00,000 - ₹3,00,000) / ₹50,000 = 10 years

Thus, the useful life of the car is 10 years.