A factory spent 90 lakh on a new machine, and depreciation of old machines in the same year was 30 lakh. What was net investment?
Answer and explanation
Correct answer: 60 lakh
For this question, the ₹90 lakh spent on the new machine is treated as gross investment. Apply Net Investment = Gross Investment − Depreciation: ₹90 lakh − ₹30 lakh = ₹60 lakh. ₹30 lakh is only the depreciation amount and ₹90 lakh is the gross amount. Adding them to obtain ₹120 lakh is wrong because depreciation represents capital consumed, not a new addition.
Frequently asked questions
What is the correct answer to this question?
60 lakh
Why is this the correct answer?
For this question, the ₹90 lakh spent on the new machine is treated as gross investment. Apply Net Investment = Gross Investment − Depreciation: ₹90 lakh − ₹30 lakh = ₹60 lakh. ₹30 lakh is only the depreciation amount and ₹90 lakh is the gross amount. Adding them to obtain ₹120 lakh is wrong because depreciation represents capital consumed, not a new addition.
Which subject and chapter does this question cover?
This is a Class 11 Accountancy question. Chapter: Depreciation, Provisions, and Reserves.
