Question

The cost of the vehicle is Rs.1, 75,000. If the value deprecates at the rate of 20% per annum, then total depreciation after 3 years was……
A.Rs.86400
B.Rs.82500
C.Rs.84500
D.Rs.85400

Answer 1

Hint: We are given the cost of a vehicle that deprecates that is reduces each year by 20% of its price. In next year it again reduces by 20% of the price of that present year. This continues for 3 years . that is
Price1 depreciates by 20%→price2
But price2 is not the cost of that vehicle it is the price with which the original value of vehicle is decreased. Hope you are getting the thing!
So price1-price2 will be the cost of a vehicle for next year.
This will continue for 2 more years in our problem above.

Complete step-by-step answer:
Initially the price is Rs.175000
We will tabulate the depreciation of each year that will help in better understanding.

1st year	Cost of vehicle =175000	Deprecates by \[175000 \times \dfrac{{20}}{{100}} = 35000\]	New cost of vehicle is 175000-35000=140000
2nd year	Cost of vehicle=140000	Deprecates by\[140000 \times \dfrac{{20}}{{100}} = 28000\]	New cost of vehicle is 140000-28000=112000
3rd year	Cost of vehicle=112000	Deprecates by\[112000 \times \dfrac{{20}}{{100}} = 22400\]	New cost of vehicle is112000-22400=89600
		Total deprecation=35000+28000+22400=85400	Cost of vehicle after 3 years =89600

Thus total depreciation after 3 years was Rs.85400.
So the correct option is D.
Note: Students generally think that cost deprecates 20% every year. So after three years it should be 60% deprecated. Or they think it is 20% thrice on the same initial value.
Because the deprecated value or decreased value should be subtracted from the original one to get the exact cost of that vehicle after that year. And that next 20% depreciation is calculated on that exact value.