CA Foundation 2026 · Paper 3 · Quantitative AptitudeQ10 · 1 mark↻ Appears in 6 of 6 yearsOfficial key verified
A sinking fund is created for replacement of machine at the end of 20 years. Its present cost is ₹ 8,00,000. After 20 years cost of new machine would be ₹ 10,00,000. How much provision need to be made out of the profit each year provided sinking fund investments can earn interest at the rate of 7% pa? The scrap value of the machine at the end of 20 years would be ₹ 2,00,000. Given 1.0720=3.86971.07^{20}=3.8697.
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Net fund needed =10,00,000−2,00,000=₹8,00,000=10,00,000-2,00,000=₹8,00,000; annuity factor =1.0720−10.07=40.9957=\dfrac{1.07^{20}-1}{0.07}=40.9957; annual provision =800000/40.9957≈₹19,514=800000/40.9957\approx ₹19,514.

Step 1 — amount the fund must reach

The scrap value of the old machine (₹2,00,000) offsets the cost of the new machine (₹10,00,000), so the fund must provide:

10,00,000−2,00,000=₹8,00,000.10,00,000-2,00,000=₹8,00,000.

(The present cost ₹8,00,000 is extra data not needed for the accumulation.)

Step 2 — annuity accumulation factor at 7% for 20 years

(1.07)20−10.07=3.8697−10.07=2.86970.07=40.9957.\frac{(1.07)^{20}-1}{0.07}=\frac{3.8697-1}{0.07}=\frac{2.8697}{0.07}=40.9957.

Step 3 — annual sinking-fund provision

A=8,00,00040.9957≈₹19,514.A=\frac{8,00,000}{40.9957}\approx ₹19,514. …

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