A company purchased a vehicle for Rs.6000. It will be used for 5 years and its residual value is expected to be Rs.1000. What is the annual amount of depreciation using straight line method of depreciation?

Answer: Option A

Cost of the asset = Rs. 6,000 Salvage Value = Rs. 1,000 Total Depreciation Cost = Cost of asset – Salvage Value = 6000 – 1000 = Rs. 5000 Useful life of the asset = 5 years Thus, annual depreciation cost = (Cost of asset – Salvage Cost)/Useful Life = 5000/5 = Rs. 1000.