The cost of the motor car as on 1st January 1987 is Rs. 70,000. The rate of depreciation is 10% P.

The correct answer is:

• Fixed installment method: Rs. 42,000
• Written down value method: Rs. 45,927

Here is a brief explanation of each method:

• Fixed installment method: In this method, the depreciation is calculated on the original cost of the asset and is the same for each year of the asset’s life. In this case, the depreciation for each year would be Rs. 70,000 x 10% = Rs. 7,000. The balance of the motor car on 1st January 1991 would be Rs. 70,000 – (7,000 x 4) = Rs. 42,000.
• Written down value method: In this method, the depreciation is calculated on the written down value of the asset, which is the original cost of the asset less the depreciation that has already been charged. In this case, the depreciation for the first year would be Rs. 70,000 x 10% = Rs. 7,000. The written down value of the asset at the end of the first year would be Rs. 70,000 – Rs. 7,000 = Rs. 63,000. The depreciation for the second year would be Rs. 63,000 x 10% = Rs. 6,300. The written down value of the asset at the end of the second year would be Rs. 63,000 – Rs. 6,300 = Rs. 56,700. The depreciation for the third year would be Rs. 56,700 x 10% = Rs. 5,670. The written down value of the asset at the end of the third year would be Rs. 56,700 – Rs. 5,670 = Rs. 51,030. The depreciation for the fourth year would be Rs. 51,030 x 10% = Rs. 5,103. The written down value of the asset at the end of the fourth year would be Rs. 51,030 – Rs. 5,103 = Rs. 45,927.