PRC-1 · Chapter 6 · Question 72 of 100
An entity has an asset with a carrying amount of Rs. 2,916,000 on 1 Jan 2021. It was bought 3 years ago for Rs. 4,000,000 and is depreciated on a reducing balance basis. What is the approximate depreciation rate being used?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) 10%
Explanation
Using the formula: Carrying Amount = Cost x (1-r)^n. 2,916,000 = 4,000,000 x (1-r)^3. (1-r)^3 = 0.729. Cube root of 0.729 is 0.9. Therefore, 1-r = 0.9, meaning r = 0.10 or 10%.
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