if Nokia spends Rs. 10 Crore (100 million) this year to upgrade its manufacturing plant. What will be depreciation expense this year assuming a 5 year steady depreciation and why the answer is 2 crore? Did not getting the answer.

Nov 20 2013 11:56 PM

If nokia spends 100 million this year on upgrading the manufacturing plant, the

investment will generate revenue for next 5 years so the 100 million will be divided equally over the period of 5 years.

Nov 21 2013 07:50 PM
investment will generate revenue for next 5 years so the 100 million will be divided equally over the period of 5 years.

Yes sharath is correct but if their was a salvage value for the upgraded parts . then the depreciation per year would be .10 Cr - salvage value / 5 .

Nov 28 2013 01:41 PM
The simple way to look at it is,

1.The money that Nokia spent on the plant is 100 million with a forecast that it will generate revenue for the next 5 years.

2. Since Nokia is going to receive revenue from the plant for the next 5 years, the expense on it too is spread out for the next 5 years for accounting and tax purposes,

3. Assuming that the depreciation is steady and consistent, the method of spreading the depreciation over the next 5yrs is to divide the initial expense of 100 million with 5 years i.e; 100/5 = 20million or 2crores.

Feb 08 2014 11:43 PM
1.The money that Nokia spent on the plant is 100 million with a forecast that it will generate revenue for the next 5 years.

2. Since Nokia is going to receive revenue from the plant for the next 5 years, the expense on it too is spread out for the next 5 years for accounting and tax purposes,

3. Assuming that the depreciation is steady and consistent, the method of spreading the depreciation over the next 5yrs is to divide the initial expense of 100 million with 5 years i.e; 100/5 = 20million or 2crores.