Q.Shiv & Co. purchased a mobile phone for ₹21,000 on 1st April, 2019. The estimated life of the mobile phone is 10 years, after which its residual value will be ₹1,000 only. Find out the amount of annual depreciation according to linear method.

The key idea is Straight Line Depreciation, where the asset loses equal value each year over its useful life.

Step 1 – Find the depreciable amount

Depreciable amount = Cost − Residual value

$= 21,000 - 1,000 = 20,000$

Step 2 – Divide by useful life …

Why Straight Line Depreciation?

When a business buys an asset like a mobile phone, it doesn’t treat the full purchase price as an expense in the year of purchase. Instead, the cost is spread over the years the asset will be used — that’s depreciation. The Straight Line Method (also called the Fixed Instalment Method) is the simplest: it assumes the asset loses the same amount of value every year.

Think of it this way: if you buy a phone for ₹21,000 and know you can sell it for ₹1,000 after 10 years, the total value you’ll “use up” is ₹20,000. That ₹20,000 is divided equally over 10 years.

The logic is clean: you’re not guessing at yearly fluctuations — you’re simply spreading the net cost evenly.

Step-by-step solution

1. Identify the cost of the asset

   The mobile phone was purchased for ₹21,000 on 1st April 2019. This is the initial book value.

2. Identify the residual (scrap) value

   After 10 years, the phone is expected to be worth ₹1,000. This is the amount you’ll recover at the end — it should not be depreciated.

3. Calculate the depreciable amount

   This is the total value that will be expensed over the asset’s life:

   $\text{Depreciable Amount} = ₹21,000 - ₹1,000 = ₹20,000$ …