A company purchased a machine for Rs. 50.000 on January 1, 2017. The expected working life
the machine was five years. The salvage value of the machine is expected to be 20% of its cost. The
company has followed Straight line depreciation policy. At the end of year 2018, company sold the
machine at Rs. 25,000 and on the same date the company purchased another machine for Rs.
75.000. Accounts are closed at the end of 31 December
Ans: Profit on sale: Rs.2,000, Balance: Rs.75.000
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With the straight line depreciation method, the value of an asset is reduced uniformly over each period until it reaches its salvage value. Straight line depreciation is the most commonly used and straightforward depreciation method for allocating the cost of a capital asset. It is calculated by simply dividing the cost of an asset, less its salvage value, by the useful life of the asset.

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