2.3. Estimated Annual Cost Comparison

Try these first

1. 1.

   What formula is used to calculate the first-year depreciation?

   Hint

   Think about the percentage of the book value.

2. 2.

   If a machine was purchased for 28 lakh, what would be its book value at the end of the first year after applying 40% depreciation?

   Hint

   Subtract the depreciation from the purchase price.

3. 3.

   What is the formula to calculate the first-year depreciation?

   • A) D = Book Value × 0.4
   • B) D = 0.4 × Book Value
   • C) D = Book Value × 0.6

   Hint

   Focus on the percentage of the book value used in calculations.

4. 4.

   True or False: Cumulative costs help to assess the better time for machinery replacement.

   • True
   • False

   Hint

   Think about the cost patterns over several years.

5. 5.

   If a machine purchased at 30 lakh depreciates at 30% annually, calculate its book value after 3 years. After that, assess whether to replace it if the proposed machine's average annual cumulative cost is 18 lakh.

   Hint

   Calculate each year's depreciation and keep track of annual and proposed costs.

6. 6.

   You have a loader costing 25 lakh, with varying operating costs. If you find that over the years the average annual cumulative cost aligns closely with revenue generated, how would you approach your next decision on replacement?

   Hint

   Tracking both revenue generated and costs gives clarity on profitability and makes replacement decisions easier.