Question

A car costing ₹8,50,000 has scrap value of ₹1,25,000. If annual depreciation charge is ₹1,45,000, then useful life of the car is:

• A. 12 years
• B. 5 years
• C. 7 years
• D. 10 years

Answer 1

The Correct Option is B

The problem requires determining the useful life of a car using depreciation. Depreciation is calculated using the formula:

Depreciation Formula: \( \text{Annual Depreciation} = \frac{\text{Cost Price} - \text{Scrap Value}}{\text{Useful Life}} \)

Given data:

• Cost Price of the car = ₹8,50,000
• Scrap Value = ₹1,25,000
• Annual Depreciation = ₹1,45,000

Plugging in the values:

Equation: \( 1,45,000 = \frac{8,50,000 - 1,25,000}{\text{Useful Life}} \)

Simplifying the equation:

1. Calculate the total depreciation: \( 8,50,000 - 1,25,000 = 7,25,000 \)
2. Substitute back into the equation: \( 1,45,000 = \frac{7,25,000}{\text{Useful Life}} \)
3. Solve for Useful Life: \( \text{Useful Life} = \frac{7,25,000}{1,45,000} \)
4. Calculate: \( \text{Useful Life} = 5 \text{ years} \)

Therefore, the useful life of the car is 5 years.