Nasir (Student CA CPT ) (47 Points)
28 October 2013Hi All,
Kindly help me in an Annuity Depreciation problem:
Example:
Product purchased for Rs.20,000/-. It has to be depreciated in 4 years @ 5% P.A. using the annuity method.
I have the answer but NOT the formula to arrive at it!
Can someone please give me an elaborate example / step by step formula?
:))
Nash.
Nikhil Kaushik
(Fellow CA)
(85252 Points)
Replied 29 October 2013
The formula is as under:
E = P×r×(1 + r)n/((1 + r)n - 1)
E is EMI
where P is Cost of the asset:
r is rate of interest to be used. if interest rate is 5%, then r shall be 0.05
n is tenure in number of years
in your case the formula shall be (20000*0.05*(1+.05)^4)/((1+.05)^4-1)
Answer shall be Rs 5,640.24
| Opening Balance | Interest @ 5% | Depreciation Charge | Closing Balance | |
| Year 1 | 20,000 | 1,000 | 5,640.24 | 15,360 |
| Year 2 | 15,360 | 768 | 5,640.24 | 10,488 |
| Year 3 | 10,488 | 524 | 5,640.24 | 5,372 |
| Year 4 | 5,372 | 269 | 5,640.24 | - |
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