5.1. Intuitive Method and its Comparison

Try these first

1. 1.

   What is the depreciation for a machine costing 28 lakh with a rate of 40%?

   Hint

   Multiply the cost by the depreciation rate.

2. 2.

   How is book value at the end of the first year calculated?

   Hint

   Book value = Cost - Depreciation.

3. 3.

   What is the first-year depreciation for a loader costing 28 lakh at a 40% rate?

   • 11,20,000
   • 10,00,000
   • 12,50,000

   Hint

   Use the formula: Depreciation = Cost x Rate.

4. 4.

   The economic life of a machine is determined when...

   • True
   • False

   Hint

   Consider the trends of costs over the years.

5. 5.

   If a company has a loader with a current value of 10,50,000 after several years of depreciation, calculate the expected savings if a new loader that costs 15 lakh will reduce operating costs by 20% annually over 5 years.

   Hint

   Account for both the depreciation of the new and old loaders in the overall cost-benefit analysis.

6. 6.

   Analyze the trend in cumulative costs for a machine over four years if the annual costs are 25,00,000; 20,50,000; 15,00,000; 22,50,000 respectively. When should the decision to replace be expected based on minimizing those cumulative costs?

   Hint

   Plot the costs on a graph to visualize the trend for clearer analysis.