Question

Which of the following expression is used to calculate 'Annual depreciation' by straight line method? Where 'O' is original value, 'S' is scrape value and 'N' life of structure in years.
1. S / (O × N)
2. (O - S) / N
3. O / (S × N)
4. (O + S) / N

Answer 1

Correct Answer - Option 2 : (O - S) / N

Explanation:

Depreciation: Decrease or loss in the value of a property due to structural deterioration use, wear and tear, decay and obsolescence. 

Method of calculating depreciation:

1. Straight line method
2. Constant percentage method
3. Sinking fund method
4. Quality survey method

Straight line method:

Annual depreciation (D) = (Original cost – Scrap value)/ Life in years

D = (O – S)/N

Book value after N years = Original cost – N × D