Question
Download Solution PDFA building has been purchased by a person at a cost of Rs. 25,000. The useful life of the building is 40 years and the scrap value of the building is Rs. 3,000. Calculate the annual sinking fund (Rs.) at the rate of 5% interest. (Take 1.0540 = 7.04)
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFConcept:
the annual sinking fundAnnual sinking fund (I) is given by:
\(I = \;\frac{{Si}}{{{{\left( {1 + i} \right)}^n} - 1}}\)
Where,
S = total amount of sinking fund to be accumulated
i = rate of interest
n = number of years required to accumulate the sinking fund
Calculation:
S = Cost - Scrap Value = 25000 - 3000 = 22000
n = 40 years
r = 5%
\(\rm{I = \;\frac{{22000 \times 0.05}}{{{{\left( {1 + 0.05} \right)}^{40}} - 1}} = 182.11}\)
∴ The annual sinking fund is Rs. 182/-
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