To determine the straight-line depreciation for the new equipment, we need to understand the concept of depreciation and how it is calculated using this specific method.

Depreciation Explained

Depreciation is an accounting process used to systematically allocate the cost of a tangible asset over its estimated useful life. This process helps to match the expense of using an asset with the revenues it helps to generate. There are several methods for calculating depreciation, and the straight-line depreciation method is one of the most common and straightforward.

Straight-Line Depreciation Method

The straight-line depreciation method assumes that an asset provides equal economic benefits over each year of its useful life, leading to an equal amount of depreciation expense being recognized annually. The formula for calculating straight-line depreciation is as follows:

$$ \text{Annual Depreciation} = \frac{\text{Cost of Asset} - \text{Salvage Value}}{\text{Useful Life}} $$

• Cost of Asset: This is the initial expenditure or the purchase price of the new equipment. In this question, it is the investment of Rs. 60,000.
• Salvage Value: Also known as residual value, this is the estimated resale value of the new equipment at the end of its useful life. Here, it is Rs. 8,000.
• Useful Life: This refers to the estimated period (in years) over which the new equipment is expected to be productive and used by the business. In this case, it is 5 years.

Equipment Depreciation Calculation

Let's apply the given values to the straight-line depreciation formula to find the annual depreciation for the new equipment:

• Investment (Cost of Asset) = Rs. 60,000
• Salvage Value = Rs. 8,000
• Useful Life = 5 years

First, calculate the total depreciable amount, which is the cost of the asset minus its salvage value:

$$ \text{Depreciable Amount} = \text{Cost of Asset} - \text{Salvage Value} $$

$$ \text{Depreciable Amount} = \text{Rs. 60,000} - \text{Rs. 8,000} = \text{Rs. 52,000} $$

Next, divide the depreciable amount by the useful life of the equipment:

$$ \text{Annual Depreciation} = \frac{\text{Depreciable Amount}}{\text{Useful Life}} $$

$$ \text{Annual Depreciation} = \frac{\text{Rs. 52,000}}{\text{5 years}} $$

$$ \text{Annual Depreciation} = \text{Rs. 10,400 per year} $$

Annual Depreciation Summary

Therefore, the straight-line depreciation for the new equipment, with an initial investment of Rs. 60,000 and an expected salvage value of Rs. 8,000 after 5 years, is calculated to be Rs. 10,400 per year. This means the equipment's value will be reduced by Rs. 10,400 in the company's books each year for 5 years.