Discussion
A machine costs Rs. 70,000. It depreciates at the rate of 5% in the first year and 10% in the second year. Its depreciated value after 2 years is :
Answer: B
The depreciated value after 2 years is Rs. 59,850.
Depreciation at a rate on the reduced value works like compound interest in reverse:
\[ \begin{aligned} V &= 70000 \times 0.95 \times 0.90 \\ &= 66500 \times 0.90 = 59850 \end{aligned} \]
After the first year the machine is worth Rs. 66,500 (a fall of Rs. 3,500), and the second year's 10% is taken on that, a further Rs. 6,650.
Taking both rates on the original cost would give \(70000 - 3500 - 7000 = 59500\), which is not offered; 59,750, 59,950 and 59,805 do not come from either method.
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