Question

The cost of a refrigerator is Rs. 9000. Its value depreciates at the rate of 5% every year. The total depreciation in its value at the end of 2 years is 877.5
A.True
B.False

Answer 1

Hint: Depreciation refers to when the value of something goes down over time. The value of a car is usually decreasing in value with time. therefore, its value is said to be depreciation. Here in question the value of the refrigerator is Rs 9000. depreciation rate is 5% for a year. and we must calculate it for 2 year. You can use either formula directly or calculate it year wise . Here is the formula for Amount after T year is given by
 \[A=P{{\left ( 1-\dfrac{R}{100} \right)}^{T}}\]
     Where p stands for principal value, R for rate of depreciation and t for time. Using the above formula you are able to find depreciation of two years.

Given: here the cost of a refrigerator is Rs. 9000, rate of 5% every year, time 2years is given for calculating 2 year depreciation.

Complete step-by-step answer:
Let’s try to solve this question in elaborative manner
What is the formula for calculating depreciation? Here is it
               Formula for depreciation for a year = (Asset cost – salvage value) × factor
Where assets cost is the initial price of the refrigerator, salvage value is the expenses that we did on the refrigerator here is it zero initially. Factor is nothing but percentage divided by 100
Let’s calculate depreciation of a year
    Depreciation for a year \[=9000\times \dfrac{5}{100}\]
                                               = 450
Let’s see how to calculate depreciation for second year
       Cost of refrigerator for next year = 9000-450
                                                                           = 8550
        Depreciation for a 2nd year \[=8550\times \dfrac{5}{100}\]
                                                            = 427.5
Net depreciation cost at the end of two year is 877.5
Hence the statement is true.

Note: Salvage is nothing but initial expenses that you have to subtract from principal value but here nothing is mentioned in question so we will take it zero initially . Salvage for second year is the first year depreciation.