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

Depreciation is calculated using the straight-line method: Rs 27 lakhs / 12 years = Rs 2.25 lakhs per year.

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.