6. Next Steps

Try these first

1. 1.

   What is depreciation?

   Hint

   Think about assets and how they decrease in value.

2. 2.

   Calculate the first year depreciation for a machine purchased at ₹12,00,000 with a rate of 0.4.

   Hint

   Use the formula: Purchase Price x Depreciation Rate.

3. 3.

   What does depreciation represent in terms of machinery?

   • A decrease in value
   • Increase in cost
   • Total profit

   Hint

   Think about how assets lose worth over time.

4. 4.

   True or False: The economic life of machinery only considers initial costs.

   • True
   • False

   Hint

   Think broader than just the debut investment.

5. 5.

   A company purchased a new loader for ₹50,00,000 with a 0.35 depreciation rate. How much will this machine depreciate in the first three years and what will its book value be at the end of year three?

   Hint

   Follow through each year's depreciation to get the correct book value.

6. 6.

   Using the minimum cost method, if the annual operating cost of the current loader is ₹21,00,000 and next year's cost is projected to be ₹24,00,000, while the proposed loader holds an average annual cumulative cost of ₹20,00,000. Should the current loader be replaced?

   Hint

   Compare future costs against average cumulative costs to determine action.