Question

An MRI machine is purchased by a hospital at Rs 27 lakhs with an expected life of 12 years. What will be the value of annual depreciation?

• A. 27 lakhs
• B. 2.25 lakhs
• C. 15 lakhs
• D. 1.5 lakhs

Answer 1

The Correct Option is B

To calculate the annual depreciation for the MRI machine, we can use the straight-line depreciation method. This method evenly depreciates the asset over its useful life.

Step-by-step Process:

1. Determine the initial cost of the asset, which is Rs 27 lakhs.
2. Identify the useful life of the asset, which is 12 years.
3. Apply the straight-line depreciation formula:

Annual Depreciation = (Initial Cost - Salvage Value) / Useful Life

1. Assume the salvage value is Rs 0 (unless specified otherwise).
2. Calculate the annual depreciation:
   • Annual Depreciation = \(\frac {(27,00,000 - 0)}{2} = \frac {27,00,000}{12}\)
   • Annual Depreciation = Rs \(2,25,000\)

Thus, the value of the annual depreciation of the MRI machine is Rs \(2.25\) lakhs, which corresponds to the option (B).

Answer 2

Depreciation is the process of allocating the cost of a fixed asset over its useful life. One common method of calculating depreciation is the straight-line method, which spreads the cost of the asset evenly over its estimated useful life.

In this case, the asset is valued at Rs 27 lakhs, and its useful life is expected to be 12 years. The depreciation per year is calculated as follows:
Depreciation per year = Total cost of the asset / Useful life of the asset
Depreciation per year = Rs 27 lakhs / 12 years = Rs 2.25 lakhs per year.

This means that every year, Rs 2.25 lakhs will be deducted as depreciation from the asset's value, reflecting its usage and wear over time. The straight-line method is simple to apply and commonly used when the asset's value declines evenly over its life.