A firm’s gross investment is 50 lakh and its net investment is 10 lakh. What is depreciation?
Answer and explanation
Correct answer: 40 lakh
Begin with Net Investment = Gross Investment − Depreciation. Rearranging gives Depreciation = Gross Investment − Net Investment. Therefore, depreciation = ₹50 lakh − ₹10 lakh = ₹40 lakh. The amounts ₹50 lakh and ₹10 lakh are the given gross and net investments. Adding them to obtain ₹60 lakh would confuse the relationship and produce an incorrect answer.
Frequently asked questions
What is the correct answer to this question?
40 lakh
Why is this the correct answer?
Begin with Net Investment = Gross Investment − Depreciation. Rearranging gives Depreciation = Gross Investment − Net Investment. Therefore, depreciation = ₹50 lakh − ₹10 lakh = ₹40 lakh. The amounts ₹50 lakh and ₹10 lakh are the given gross and net investments. Adding them to obtain ₹60 lakh would confuse the relationship and produce an incorrect answer.
Which subject and chapter does this question cover?
This is a Class 11 Accountancy question. Chapter: Depreciation, Provisions, and Reserves.
