4.1. Calculation of Investment Costs

Try these first

1. 1.

   What is economic life in machinery?

   Hint

   Think about when it's most cost-effective to use the machine.

2. 2.

   How do you calculate depreciation using the double declining method?

   Hint

   Remember to use the initial or previous year's book value.

3. 3.

   What is the primary purpose of calculating economic life?

   • To determine when to replace a machine
   • To calculate profit
   • To assess market trends

   Hint

   Focus on efficiency and cost.

4. 4.

   True or False: Depreciation increases the book value of an asset.

   • True
   • False

   Hint

   Consider how assets are affected over time.

5. 5.

   A construction company owns a crane with an initial cost of ₹50,00,000. If the salvage value is ₹10,00,000 after 10 years, calculate the annual depreciation using the double declining balance method. Show all steps.

   Hint

   Use the formula provided for each year.

6. 6.

   Consider a machine that has increased in costs annually at 5% due to inflation. If the purchase price was ₹40,00,000, what will its cost be at the end of the 5th year?

   Hint

   Use the formula for compound interest to factor inflation.