Straight Line method:
This method is based on the assumption of equal usage of the asset over its entire useful life. It is also called fixed installment method because the amount of depreciation remains constant from year to year over the useful life of the asset. According to this method, a fixed and an equal amount is charged as depreciation in every accounting period during the life time of an asset. The amount annually charged as depreciation is such that it reduces the original cost of the asset to its scarp value at the end of its useful life.
Written Down Value Method:
Under this method, depreciation is charged on the book value of the asset. Since book value keeps on reducing by the annual charge of depreciation. It is also known as reducing balance method.
This method involves the application of a pre-determined proportion/percentage of the book value of the asset at the beginning of every accounting period. The amount of depreciation reduces year after year.
Basis of Difference |
Straight Line Method |
Written Down Value method |
Basis of charging depreciation |
Original cost |
Book value (original cost less depreciation charged till date) |
Annual depreciation charge |
Fixed (Constant) year |
Declines year after year |
Total charge against profit and loss account in respect of depreciation and repairs |
Unequal year after year. It increases in later years. |
Almost equal every year. |
Recognition by income tax law |
Not recognised |
Recognised |
Suitability |
It is suitable for assets in which repair charges are less, the possibility of and obsolescence is low scrap value depends upon the time period involved. |
It is suitable for assets, which are affected by technological changes and require more repair expenses with passage of time. |
Specific reserve is the reserve, which is created for some specific purpose and can be utilised only for that purpose.
It is a reserve which does not appear in the balance sheet. It may also help to reduce the disclosed profits and also the tax liability. The secret reserve can be merged with the profits during the lean periods to show improved profits.
When the purpose for which reserve is created is not specified called general reserve or free reserve, while Specific reserve is the reserve which is created for some specific purpose and can be utilised only for that purpose.
The basic factors affecting the amount of depreciation are:
The various causes of depreciation are:
Need for Depreciation:
Depreciation is decline in the value of a tangible fixed asset. In accounting, depreciation is the process of allocating depreciable cost over useful life of a fixed asset.
Examples of Revenue Reserve:
Examples of Capital Reserve:
Depreciation is charged on fixed assets and is an expense for the business. It is shown on the debit side of the profit and loss account as an expense.
In the Balance Sheet, it is shown by way of deduction from the concerned asset. Hence the book value of the asset is reduced.
Written down value method is suitable for charging depreciation if the management does not want to increase burden on profits and loss account of depreciation and repair, because this method results in almost equal burden of depreciation and repair expenses taken together every year on profit and loss account. While on straight line method, the total amount charged against profit on account of depreciation and repair taken together will not be uniform throughout the life of the asset, rather it will keep on increasing from year to year.
The determination of depreciation depends on three parameters, viz. cost, estimated useful life and probable salvage value.
Cost of Asset:
Cost (original or historical asset) of an asset includes invoice price and other costs, which are necessary to put the asset in use or working condition. Besides the purchase price, it includes freight and transportation cost, transit insurance, installation cost, registration cost, commission paid on purchase of asset add items such as software, etc.
Estimated Net Residual Value:
Net Residual value (also known as scrap value or salvage value for accounting purpose) is the estimated net realizable value (sale value) of the asset at the end of its useful life. The net residual value is calculated after deducting the expenses necessary for the disposal of the asset.
Depreciable cost of an asset is equal to its cost less net residual value.
Estimated useful life of Asset: Useful life of an asset is estimated in terms of number of years, it can be effectively used for business operations. For example, if a machine can work for 25 years but is likely to become obsolete in 15 years on account of availability of a better type of machine due to improved technology, its useful life will be considered as only 15 years.
Useful life depends up on the following factors:
Basis |
Revenue Reserve |
Capital Reserve |
Source of creation |
It is created out of revenue profits which arise out of normal operating activities of the business and are otherwise available for dividend distribution. |
It is created primarily out of capital profit which do not arise out of the normal operating activities of the business and not available for dividend distribution. |
Purpose |
It is created to strengthen the financial position to meet unforeseen contingencies or for some specific purposes. |
It is created for compliance of legal, requirements or accounting practices. |
Usage |
A specific revenue reserve can be utilsed only for the earmarked purpose while a general reserve can be utilised for any purpose including distribution of dividend. |
It can be utilised for specific purposes as provided in the law in force e.g. to write off capital losses or issue of bonus shares. |
Basis |
Provision |
Reserve |
Basic Nature |
Charge against profit |
Appropriation of profit |
Purpose |
It is created for a known liability or expense pertaining to current accounting period, the amount of which is not certain. |
It is made for strengthening the financial position of the business. |
Effect on taxable profits |
It reduces taxable profits. |
It has no effect on taxable profit. |
Presentation in Balance Sheet |
It is shown either (i) by way of deduction from the item on the asset side for which it is created or (ii) in the liabilities side along with current liabilities. |
It is shown on the liabilities side after capital amount. |
Use for the payment of dividend |
It can not be used for dividend distribution. |
It can be used for dividend distribution. |
Machinery Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2010 |
|
|
2010 |
|
|
Jul 1 |
To Bank |
1,20,000 |
Dec 31 |
By Depreciation |
4,500 |
|
|
|
Dec 31 |
By Balance c/d |
1,15,500 |
|
|
1,20,000 |
|
|
1,20,000 |
2011 |
|
|
2011 |
|
|
Jan 1 |
To Balance b/d |
1,15,500 |
Dec 31 |
By Depreciation |
9,000 |
|
|
|
Dec 31 |
By Balance c/d |
1,06,500 |
|
|
1,15,500 |
|
|
1,15,500 |
2012 |
|
|
2012 |
|
|
Jan 1 |
To Balance b/d |
1,06,500 |
Dec 31 |
By Depreciation |
9,000 |
|
|
|
Dec 31 |
By Balance c/d |
97,500 |
|
|
1,06,500 |
|
|
1,06,500 |
2013 |
|
|
|
|
|
Jan 1 |
To Balance b/d |
97,500 |
|
|
|
Depreciation Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2010 |
|
|
2010 |
|
|
Dec 31 |
To Machinery |
4,500 |
Dec 31 |
By Profit & Loss |
4,500 |
|
|
4,500 |
|
|
4,500 |
2011 |
|
|
2011 |
|
|
Dec 31 |
To Machinery |
9,000 |
Dec 31 |
By Profit & Loss |
9,000 |
|
|
9,000 |
|
|
9,000 |
2012 |
|
|
2012 |
|
|
Dec 31 |
To Machinery |
9,000 |
Dec 31 |
By Profit & Loss |
9,000 |
|
|
9,000 |
|
|
9,000 |
Amount to be written off = ₹1,08,000 + ₹12,000 - ₹12,000 = ₹1,08,000.
Annual amount of depreciation is equal to ₹1,08,000 divided by 12 which amounts to ₹9,000
For the first year, machine has been used for half year that's why depreciation has been charged only ₹4,500
Cranes Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2017 |
|
|
2017 |
|
|
Apr 1 |
To Balance b/d ₹(35,00,000 + 5,00,000) |
40,00,000 |
Oct 1 |
By Depreciation A/c @ 10% on ₹5,00,000 for six months) |
25,000 |
Oct 1 |
To Profit & Loss (Profit) |
47,500 |
|
|
|
Oct 1 |
To Bank A/c ₹(4,50,000 x 2) |
9,00,000 |
Oct 1 |
By Bank A/c ₹4,75,000 x 110/100 |
5,22,500 |
|
|
|
Dec 31 |
By Depreciation A/c @10% on ₹35,00,000 for 9 months) |
2,62,500 |
|
|
|
|
@10% on ₹9,00,000 for 3 months |
22,500 |
|
|
|
Dec 31 |
By Balance c/d |
41,15,000 |
|
|
49,47,500 |
|
|
49,47,500 |
Truck Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2010 |
|
|
2011 |
|
|
Oct 1 |
To Bank |
8,00,000 |
Mar 31 |
By Depreciation (15% for 6 months) |
60,000 |
|
|
|
Mar 31 |
By Balance c/d |
7,40,000 |
|
|
8,00,000 |
|
|
8,00,000 |
2011 |
|
|
2012 |
|
|
Apr 1 |
To Balance b/d |
7,40,000 |
Mar 31 |
By Depreciation (15% on ₹7,40,000) |
1,11,000 |
|
|
|
Mar 31 |
By Balance c/d |
6,29,000 |
|
|
7,40,000 |
|
|
7,40,000 |
2012 |
|
|
2012 |
|
|
Apr 1 |
To Balance b/d |
6,29,000 |
Mar 31 |
By Depreciation (15% on ₹6,29,000) |
94,350 |
|
|
|
Mar 31 |
By Balance c/d |
5,34,650 |
|
|
6,29,000 |
|
|
6,29,000 |
2013 |
|
|
2013 |
|
|
Apr 1 |
To Balance b/d |
5,34,650 |
Dec 31 |
By Depreciation (15% on ₹5,34,650 for 9 months) |
60,148 |
Dec 31 |
To Profit & Loss (Profit) |
25,498 |
Dec 31 |
By Bank (Sales Proceed) |
5,00,000 |
|
|
5,60,148 |
|
|
5,60,148 |
According to the Companies Act, Provision refers to the amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets or the amount retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy.
Examples of provisions:
Accounting treatment for provisions:
When business transaction takes place on credit basis, debtors account is created and its balance is shown on the asset-side of the balance sheet.
For creating a provision for doubtful debts the journal entry is:
Dt. |
Particulars |
L.F. |
Dr. ₹ |
Cr. ₹ |
|
|
Profit & Loss A/c |
Dr. |
|
|
|
|
To Provision for doubtful debts |
|
|
|
A reserve is created by retention of profit of the business can be for either a general or a specific purpose.
General Reserve: When the purpose for which reserve is created is not specified, it is called General Reserve. It is also termed as free reserve because the management can freely utilize it for any purpose. General Reserve strengthens the financial position of the business.
Specific Reserve: Specific reserve is the reserve, which is created for some specific purpose and can be utiised only for that purpose. Examples of specific reserves are:
Dividend equalisation reserve: This reserve is created to stabilize or maintain dividend rate. In the year of high profit, amount is transferred to Dividend Equalisation reserve and in year of low profit, this amount is used to maintain the rate of dividend.
Workmen Compensation Fund: It is created to provide for claims of the workers due to accident, etc.
Investment fluctuation fund: It is created to make for decline in the value of investment due to market fluctuations.
Debenture Redemption reserve: It is created to provide funds for redemption of debentures.
Reserves are also classified as revenue and capital reserves according to the nature of the profit out of which they are created.
Revenue Reserves: These are created from revenue profits which arise out of the normal operating activities of the business and are otherwise freely available for distribution as dividend. Examples of Revenue reserves are:
Capital Reserves: These are created out of capital profits which do not arise from the normal operating activities. These reserves can be used for writing off capital losses or issue of bonus shares in case of a company.
Examples are:
Depreciation may be described as a permanent, continuing and gradual shrinkage in the book value of fixed assets. It is based on the cost of assets consumed in a business and not on it’s market value.
Causes of Depreciation:
Need for Depreciation:
Examples of provision:
Examples of Reserve:
Basis |
Straight Line Method |
Written Down Value Method |
Charging depreciation |
Original cost |
Book value (i.e., original cost less depreciation charged till dated) |
Annual depreciation charge |
Fixed (Constant)year |
Declines year after year |
Total charged against profit and loss account in respect of depreciation and repairs |
Unequal year after year. It increases in later years. |
Almost equal every year. |
Recognition by Income |
Not recognised |
Recognised |
Suitability |
It is suitable for assets in which repair charges are less, the possibility of and obsolescence is low scrap value depends upon the period involved. |
It is suitable for assets, which are affected by technological changes and require more repair expenses with passage of time. |
Truck Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2011 |
|
|
2011 |
|
|
Oct 1 |
To Bank |
20,00,000 |
Mar 31 |
By Depreciation (@ 10% for 6 months) |
1,00,000 |
|
|
|
Mar 31 |
By Balance c/d |
19,00,000 |
|
|
20,00,000 |
|
|
20,00,000 |
2012 |
|
|
2013 |
|
|
Apr 1 |
To Balance b/d |
19,00,000 |
Mar 31 |
By Depreciation (@ 10% for a year) |
1,90,000 |
|
|
|
Mar 31 |
By Balance c/d |
17,10,000 |
|
|
19,00,000 |
|
|
19,00,000 |
2013 |
|
|
2013 |
|
|
Apr 1 |
To Balance b/d |
17,10,000 |
Jul 1 |
By Depreciation (for 3 months @ 10% on ₹8,50,000) |
21,375 |
|
|
|
Jul 1 |
By Bank (Insurance Company) |
6,00,000 |
|
|
|
Jul 1 |
By Profit & Loss (Loss) |
2,33,625 |
|
|
|
Dec 31 |
By Depreciation (for 9 months @ 10% on ₹8,55,000) |
64,125 |
|
|
|
Dec 31 |
By Bank |
1,50,000 |
|
|
|
Dec 31 |
By Profit & Loss (Loss) |
6,40,875 |
2014 |
|
|
2014 |
|
|
Jan 31 |
To Bank (Purchase of New Truck) |
12,00,000 |
Mar 31 |
By Depreciation (10% for 2 months on 12,00,000) |
20,000 |
|
|
|
Mar 31 |
By Balance c/d |
11,80,000 |
|
|
29,10,000 |
|
|
29,10,000 |
Working Note:
Loss on Sale on 1st Truck |
|
|
₹ |
Value of truck on 1st, April 2013: ₹17,10,000 / 2 |
8,55,000 |
Less: Depreciation for 3 months @ 10% on ₹8,55,000 |
(21,375) |
Value at the time of disposal |
8,33,625 |
Less: Insurance claim received |
(6,00,000) |
Loss on settlement of 1st truck |
2,33,625 |
Loss on Sale on 2nd Truck |
|
|
₹ |
Value of truck on 1st, April 2013: ₹17,10,000 / 2 |
8,55,000 |
Less: Depreciation for 9 months @ 10% on ₹8,55,000 |
(64,125) |
Value at the time of disposal |
7,90,875 |
Less: value received from insurance company |
(1,50,000) |
Loss on settlement of 1st truck |
6,40,875 |
Computation of Depreciation on 3rd Truck:
It was purchased on Jan 31, 2014, Hence Depreciation will be charged for 2 months only i.e., Feb and Mar on ₹12,00,000 at the rate of 10% p.a., which amounts to ₹20,000.
Bus Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2011 |
|
|
2011 |
|
|
Jan 1 |
To Bank |
30,00,000 |
Dec 31 |
By Depreciation (@ 15%) |
4,50,000 |
|
|
|
Dec 31 |
By Balance c/d |
25,50,000 |
|
|
30,00,000 |
|
|
30,00,000 |
2012 |
|
|
2012 |
|
|
Jan 1 |
To Balance b/d |
25,50,000 |
Dec 31 |
By Depreciation (@ 15% on ₹25,50,000) |
3,82,500 |
|
|
|
Dec 31 |
By Balance c/d |
21,67,500 |
|
|
25,50,000 |
|
|
25,50,000 |
2013 |
|
|
2013 |
|
|
Jan 1 |
To Balance b/d |
21,67,500 |
Jul 1 |
By Depreciation (6 months) |
54,188 |
Jul 1 |
To Profit & Loss (Profit) |
31,688 |
Jul 1 |
By Bank (Insurance Claim) |
7,00,000 |
|
|
|
Dec 31 |
By Depreciation |
2,16,750 |
|
|
|
Dec 31 |
By Balance c/d |
12,28,250 |
|
|
21,99,188 |
|
|
21,99,188 |
2014 |
|
|
2014 |
|
|
Jan 1 |
To Balance b/d |
12,28,250 |
Dec 31 |
By Depreciation (@ 15%) |
1,84,237 |
|
|
|
Dec 31 |
By Balance c/d |
10,44,013 |
|
|
12,28,250 |
|
|
12,28,250 |
Book value of accidental bus on 01 Jan 2013 = ₹7,22,500
Depreciation on accidental bus from 01 Jan 2013 to the date of sale = ₹54,188
Value of bus on the date of sale = ₹7,22,500 - ₹54,188 = ₹6,68,312
Profit on accidental bus = ₹7,00,000 - ₹6,68,312 = ₹31,688
Journal Entries |
||||||
Date |
Particulars |
L.F |
Dr. (₹) |
Cr. (₹) |
||
2011 |
|
|
|
|
||
Jul 1 |
Machinery A/c |
Dr. |
|
2,25,000 |
|
|
|
To Sundry Creditor’s A/c |
|
|
2,00,000 |
||
|
To Bank A/c |
|
|
25,000 |
||
|
(Being machinery purchased for ₹2,00,000 and installation charges of ₹25,000 paid through cheque) |
|
|
|
||
Dec 31 |
Depreciation A/c |
Dr. |
|
20,500 |
|
|
|
To Machinery A/c |
|
|
20,500 |
||
|
(Bing depreciation charged on machinery for six months) |
|
|
|
||
Dec 31 |
Profit & Loss A/c |
Dr. |
|
20,500 |
|
|
|
To Depreciation A/c |
|
|
20,500 |
||
|
(Being depreciation charged on machinery transferred to Profit & Loss Account) |
|
|
|
||
2012 |
|
|
41,000 |
|
||
Dec 31 |
Depreciation A/c |
Dr. |
|
|
41,000 |
|
|
To Machinery A/c |
|
|
|
||
|
(Being depreciation charged on machinery) |
|
|
|
||
Dec 31 |
Profit & Loss A/c |
Dr. |
|
41,000 |
|
|
|
To Depreciation A/c |
|
|
41,000 |
||
|
(Being depreciation charged on machinery transferred to Profit & Loss Account) |
|
|
|
||
2013 |
|
|
|
|
||
Dec 31 |
Depreciation A/c |
Dr. |
|
41,000 |
|
|
|
To Machinery A/c |
|
|
41,000 |
||
|
(Being depreciation charged on machinery) |
|
|
|
||
Dec 31 |
Profit & Loss A/c |
Dr. |
|
41,000 |
|
|
|
To Depreciation A/c |
|
|
41,000 |
||
|
(Being depreciation charged on machinery transferred to Profit & Loss Account) |
|
|
|
Machinery Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2011 |
|
|
2011 |
|
|
Jul 1 |
To Sundry Creditor’s A/c |
2,00,000 |
Dec 31 |
By Depreciation |
20,500 |
Jul 1 |
To Bank A/c |
25,000 |
Dec 31 |
By Balance c/d |
2,04,500 |
|
|
2,25,000 |
|
|
2,25,000 |
2012 |
|
|
2012 |
|
|
Jan 1 |
To Balance b/d |
204,500 |
Dec 31 |
By Depreciation |
41,000 |
|
|
|
Dec 31 |
By Balance c/d |
1,63,500 |
|
|
2,04,500 |
|
|
2,04,500 |
2013 |
|
|
2013 |
|
|
Jan 1 |
To Balance b/d |
1,63,500 |
Dec 31 |
By Depreciation |
41,000 |
|
|
|
Dec 31 |
By Balance c/d |
1,22,500 |
|
|
1,63,500 |
|
|
1,63,500 |
Depreciation Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2011 |
|
|
2011 |
|
|
Dec 31 |
To Machinery |
20,500 |
Dec 31 |
By Profit & Loss |
20,500 |
|
|
20,500 |
|
|
20,500 |
2012 |
|
|
2012 |
|
|
Dec 31 |
To Machinery |
41,000 |
Dec 31 |
By Profit & Loss |
41,000 |
|
|
41,000 |
|
|
41,000 |
2013 |
|
|
2013 |
|
|
Dec 31 |
To Machinery |
41,000 |
Dec 31 |
By Profit & Loss |
41,000 |
|
|
41,000 |
|
|
41,000 |
Working Note:
(a)
Machinery Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2015 |
|
|
2015 |
|
|
Jul 1 |
To Bank Machine 1: ₹(56,000 + 24,000 + 5,000) |
85,000 |
Dec 31 |
By Depreciation |
4,250 |
|
|
|
Dec 31 |
By Balance c/d |
80,750 |
|
|
85,000 |
|
|
85,000 |
2016 |
|
|
2016 |
|
|
Jan 1 |
To Balance b/d Machine 1 |
80,750 |
Dec 31 |
By Depreciation: |
|
|
|
|
|
M 1 : 8,500 M 2: 8,667 |
17,167 |
Sep 1 |
To Bank M 2: ₹(2,50,000 + 10,000) |
2,60,000 |
2016 |
|
|
|
|
|
Dec 31 |
By Balance c/d |
|
|
|
|
|
M 1: 72,750 M 2:2,51,333 |
3,23,583 |
|
|
3,40,750 |
|
|
3,40,750 |
2017 |
|
|
2017 |
|
|
Jan 1 |
To Balance b/d |
|
Dec 31 |
By Depreciation |
|
|
M 1: 72,250 M 2: 2,51,333 |
3,23,583 |
|
M 1: 8,500 M 2: 26,000 |
34,500 |
|
|
|
Dec 31 |
By Balance c/d |
|
|
|
|
|
M 1: 63,750 M 2:2,25,333 |
2,89,083 |
|
|
3,23,583 |
|
|
3,23,583 |
2018 |
|
|
2018 |
|
|
Jan 1 |
To Balance b/d |
|
Dec 31 |
By Depreciation |
|
|
M 1: 63,750 M 2: 2,25,333 |
2,89,083 |
|
M 1: 8,500 M 2: 26,000 |
34,500 |
|
|
|
|
By Balance c/d |
|
|
|
|
|
M 1: 55,250 M 2:1,99,333 |
2,54,583 |
|
|
2,89,083 |
|
|
2,89,083 |
Depreciation Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2015 |
|
|
2015 |
|
|
Dec 31 |
To Machinery |
4,250 |
Dec 31 |
By Profit & Loss |
4,250 |
|
|
4,250 |
|
|
4,250 |
2016 |
|
|
2016 |
|
|
Dec 31 |
To Machinery: M1: 8,500 M2: 8,667 |
17,167 |
Dec 31 |
By Profit & Loss |
17,167 |
|
|
17,167 |
|
|
17,167 |
2017 |
|
|
2017 |
|
|
Dec 31 |
To Machinery: M1: 8,500 M2: 26,000 |
34,500 |
Dec 31 |
By Profit & Loss |
34,500 |
|
|
34,500 |
|
|
34,500 |
2018 |
|
|
2018 |
|
|
Dec 31 |
To Machinery: M1: 8,500 M2: 8,667 |
34,500 |
Dec 31 |
By Profit & Loss |
34,500 |
|
|
34,500 |
|
|
34,500 |
(b)
Machinery Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2015 |
|
|
2015 |
|
|
Jul 1 |
To Bank Machine 1: ₹(56,000 + 24,000 + 5,000) |
85,000 |
Dec 31 |
By Depreciation |
4,250 |
|
|
|
Dec 31 |
By Balance c/d |
80,750 |
|
|
85,000 |
|
|
85,000 |
2016 |
|
|
2016 |
|
|
Jan 1 |
To Balance b/d M 1: 80,750 |
80,750 |
Dec 31 |
By Depreciation: |
|
|
|
|
|
M 1: 8,075 M 2: 8,667 |
16,742 |
Sep 1 |
To Bank M 2: ₹(2,50,000 + 10,000) |
2,60,000 |
2016 |
|
|
|
|
|
Dec 31 |
By Balance c/d |
|
|
|
|
|
M 1: 72,675 M 2:2,51,333 |
3,24,008 |
|
|
3,40,750 |
|
|
3,40,750 |
2017 |
|
|
2017 |
|
|
Jan 1 |
To Balance b/d |
|
Dec 31 |
By Depreciation |
|
|
M1: 72,675 M 2: 2,51,333 |
3,24,008 |
|
M 1: 7,268 M 2: 25,133 |
32,401 |
|
|
|
Dec 31 |
By Balance c/d |
|
|
|
|
|
M 1 : 65,407 M 2 :2,26,200 |
2,91,607 |
|
|
3,24,008 |
|
|
3,24,008 |
2018 |
|
|
2018 |
|
|
Jan 1 |
To Balance b/d |
|
Dec 31 |
By Depreciation |
|
|
M 1: 65,407 M 2: 2,26,200 |
2,91,607 |
|
M 1: 6,540 M 2: 22,620 |
29,160 |
|
|
|
|
By Balance c/d |
|
|
|
|
|
M 1 : 58,867 M 2 :2,03,580 |
2,62,447 |
|
|
2,91,607 |
|
|
2,91,607 |
Depreciation Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2015 |
|
|
2015 |
|
|
Dec 31 |
To Machinery |
4,250 |
Dec 31 |
By Profit & Loss |
4,250 |
|
|
4,250 |
|
|
4,250 |
2016 |
|
|
2016 |
|
|
Dec 31 |
To Machinery: M1: 8,075 M2: 8,667 |
16,742 |
Dec 31 |
By Profit & Loss |
16,742 |
|
|
16,742 |
|
|
16,742 |
2017 |
|
|
2017 |
|
|
Dec 31 |
To Machinery: M1: 7,268 M2: 25,133 |
32,401 |
Dec 31 |
By Profit & Loss |
32,401 |
|
|
32,401 |
|
|
32,401 |
2018 |
|
|
2018 |
|
|
Dec 31 |
To Machinery: M1: 6,540 M2: 22,620 |
29,160 |
Dec 31 |
By Profit & Loss |
29,160 |
|
|
29,160 |
|
|
29,160 |
Note: As per the solution, the balance of machine account, as on 01/01/2019 is ₹2,62,447; whereas, as per the textbook, the balance is ₹2,62,448.
Machinery Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2011 |
|
|
2012 |
|
|
Oct 1 |
To Bank `(56,000 + 28,000) |
84,000 |
Mar 31 |
By Balance c/d |
84,000 |
|
|
84,000 |
|
|
84,000 |
2012 |
|
|
2013 |
|
|
Apr 1 |
To Balance b/d |
84,000 |
Mar 31 |
By Balance b/d |
84,000 |
|
|
84,000 |
|
|
84,000 |
2013 |
|
|
2014 |
|
|
Apr 1 |
To Balance b/d |
84,000 |
Mar 31 |
By Balance b/d |
84,000 |
|
|
84,000 |
|
|
84,000 |
Provision for Depreciation Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2012 |
|
|
2012 |
|
|
Mar 31 |
To Balance c/d |
1,316 |
Mar 31 |
By Depreciation |
1,316 |
|
|
1,316 |
|
|
1,316 |
2014 |
|
|
2013 |
|
|
Mar 31 |
To Balance c/d |
6,583 |
Apr 1 |
By Balance b/d |
1,316 |
|
|
|
Mar 31 |
By Depreciation |
5,267 |
|
|
6,583 |
|
|
6,583 |
2015 |
|
|
2014 |
|
|
Apr 1 |
To Balance c/d |
11,850 |
Apr 1 |
By Balance b/d |
6,583 |
|
|
|
Mar 31 |
By Depreciation |
5,267 |
|
|
11,850 |
|
|
11,850 |
|
|
|
2015 |
|
|
|
|
|
Apr 1 |
By Balance b/d |
11,850 |
Machinery Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2010 |
|
|
2011 |
|
|
1 Apr |
To Bank A/c ₹(1,80,000+10,000+10,000) |
2,00,000 |
Mar 31 |
By Depreciation |
20,000 |
|
|
|
Mar 31 |
By Balance c/d |
1,80,000 |
|
|
2,00,000 |
|
|
3,00,000 |
2011 |
|
|
2012 |
|
|
Apr 1 |
To Balance b/d |
1,80,000 |
Mar 31 |
By Depreciation |
20,000 |
|
|
|
Mar 31 |
By Balance c/d |
1,60,000 |
|
|
1,80,000 |
|
|
1,80,000 |
2012 |
|
|
2013 |
|
|
Apr 1 |
To Balance b/d |
1,60,000 |
Mar 31 |
By Depreciation |
20,000 |
|
|
|
Mar 31 |
By Balance c/d |
1,40,000 |
|
|
1,60,000 |
|
|
1,60,000 |
2013 |
|
|
2014 |
|
|
Apr 1 |
To Balance b/d |
1,40,000 |
Mar 31 |
By Depreciation |
20,000 |
|
|
|
Mar 31 |
By Balance c/d |
1,20,000 |
|
|
1,40,000 |
|
|
1,40,000 |
Working notes:
Annual depreciation = 2,00,000/10 = Rs. 20,000.
Cost = 1,80,000 + 10,000 + 10,000 = Rs. 2,00,000
Depreciation Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2011 |
|
|
2011 |
|
|
Mar 31 |
To Machinery |
20,000 |
Mar 31 |
By Profit & Loss |
20,000 |
|
|
20,000 |
|
|
20,000 |
2012 |
|
|
2012 |
|
|
Mar 31 |
To Machinery |
20,000 |
Mar 31 |
By Profit & Loss |
20,000 |
|
|
20,000 |
|
|
20,000 |
2013 |
|
|
2013 |
|
|
Mar 31 |
To Machinery |
20,000 |
Mar 31 |
By Profit & Loss |
20,000 |
|
|
20,000 |
|
|
20,000 |
2014 |
|
|
2014 |
|
|
Mar 31 |
To Machinery |
20,000 |
Mar 31 |
By Profit & Loss |
20,000 |
|
|
20,000 |
|
|
20,000 |
Machinery Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2010 |
|
|
2011 |
|
|
Apr 1 |
To Bank |
2,00,000 |
Mar 31 |
By Balance c/d |
2,00,000 |
|
|
2,00,000 |
|
|
2,00,000 |
2011 |
|
|
2012 |
|
|
Apr 1 |
To Balance b/d |
2,00,000 |
Mar 31 |
By Balance c/d |
2,00,000 |
|
|
2,00,000 |
|
|
2,00,000 |
2012 |
|
|
2013 |
|
|
Apr 1 |
To Balance b/d |
2,00,000 |
Mar 31 |
By Balance c/d |
2,00,000 |
|
|
2,00,000 |
|
|
2,00,000 |
2013 |
|
|
2014 |
|
|
Apr 1 |
To Balance b/d |
2,00,000 |
Mar 31 |
By Balance c/d |
2,00,000 |
|
|
2,00,000 |
|
|
2,00,000 |
Depreciation Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2011 |
|
|
2011 |
|
|
Mar 31 |
To Provision for Depreciation |
20,000 |
Mar 31 |
By Profit and Loss |
20,000 |
|
|
20,000 |
|
|
20,000 |
2012 |
|
|
2012 |
|
|
Mar 31 |
To Provision for Depreciation |
20,000 |
Mar 31 |
By Profit and Loss |
20,000 |
|
|
20,000 |
|
|
20,000 |
2013 |
|
|
2013 |
|
|
Mar 31 |
To Provision for Depreciation |
20,000 |
Mar 31 |
By Profit and Loss |
20,000 |
|
|
20,000 |
|
|
20,000 |
2014 |
|
|
2014 |
|
|
Mar 31 |
To Provision for Depreciation |
20,000 |
Mar 31 |
By Profit and Loss |
20,000 |
|
|
20,000 |
|
|
20,000 |
Provision for Depreciation Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2011 |
|
|
2011 |
|
|
Mar 31 |
To Balance c/d |
20,000 |
Mar 31 |
By Depreciation |
20,000 |
|
|
20,000 |
|
|
20,000 |
2012 |
|
|
2011 |
|
|
Mar 31 |
To Balance c/d |
40,000 |
Apr 1 |
By Balance b/d |
20,000 |
|
|
|
2012 |
|
|
|
|
|
Mar 31 |
By Depreciation |
20,000 |
|
|
40,000 |
|
|
40,000 |
2013 |
|
|
2012 |
|
|
Mar 31 |
To Balance c/d |
60,000 |
Apr 1 |
By Balance b/d |
40,000 |
|
|
|
2013 |
|
|
|
|
|
Mar 31 |
By Depreciation |
20,000 |
|
|
60,000 |
|
|
60,000 |
2014 |
|
|
2013 |
|
|
Mar 31 |
To Balance c/d |
80,000 |
Apr 1 |
By Balance b/d |
60,000 |
|
|
|
2014 |
|
|
|
|
|
Mar 31 |
By Depreciation |
20,000 |
|
|
80,000 |
|
|
80,000 |
Particulars | ₹ |
Sundry Debtors | 80,500 |
Bad debts | 1,000 |
Provision for bad debts | 5,000 |
Additional Information: Bad debts | 500 |
Bad Debts Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2017 |
|
|
2017 |
|
|
Dec 31 |
To Balance b/d |
1,000 |
Dec 31 |
By Provision for Bad Debts |
1,500 |
Dec 31 |
To Debtors |
500 |
|
|
|
|
|
1,500 |
|
|
1,500 |
Provision for Bad Debts Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2017 |
|
|
2017 |
|
|
Dec 31 |
To Bad Debts |
1,500 |
Dec 31 |
By Balance b/d |
5,000 |
Dec 31 |
To Profit & Loss |
1,900 |
|
|
|
Dec 31 |
To Balance c/d (₹80,500 – ₹500) @2% = ₹1,600) |
1,600 |
|
|
|
|
|
5,000 |
|
|
5,000 |
Profit & Loss Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2017 |
|
|
2017 |
|
|
Dec 31 |
To Net Profit |
1,900 |
Dec 31 |
By Provision for Bad Debts |
1,900 |
|
|
1,900 |
|
|
1,900 |
Name of the Account | Dr. ₹ | Cr. ₹ |
Sundry debtors | 50,000 | |
Bad debts | 6,000 | |
Provision for doubtful debts | 4,000 |
Date |
Particulars |
L.F. |
Dr. ₹ |
Cr. ₹ |
(i) |
Bad Debts |
|
2,000 |
|
|
To Sundry Debtors |
|
|
2,000 |
|
(Being bad debts charged from debtors) |
|
|
|
(ii) |
Provision for Bad Debts |
|
8,000 |
|
|
To Bad Debts |
|
|
8,000 |
|
(Being account of bad debts transferred to provision for bad debts account (₹6,000 + ₹2,000) (Previous + New) |
|
|
|
(iii) |
Profit & Loss |
|
7,840 |
|
|
To Provision for Doubtful Debts |
|
|
7,840 |
|
(Being amount of provision for doubtful debts transferred to Profit & Loss Account) |
|
|
|
Bad Debts Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2017 |
|
|
2017 |
|
|
Dec 31 |
To Balance b/d |
6,000 |
Dec 31 |
To Provision for Doubtful Debts |
8,000 |
Dec 31 |
To Sundry Debtors |
2,000 |
|
|
|
|
|
8,000 |
|
|
8,000 |
Provision for Doubtful Debts Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2017 |
|
|
2017 |
|
|
Dec 31 |
To Bad Debts (₹6,000 + ₹2,000) (Old +New) |
8,000 |
Jan 1 |
By Balance c/d |
4,000 |
Dec 31 |
To Balance c/d (₹48,000 x 8%) |
3,840 |
Dec 31 |
By Profit & Loss |
7,840 |
|
|
11,840 |
|
|
11,840 |
Debtor’s Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2017 |
|
|
2017 |
|
|
Dec 31 |
To Balance b/d |
50,000 |
Dec 31 |
By Bad Debts |
2,000 |
|
|
|
Dec 31 |
By Balance c/d |
48,000 |
|
|
50,000 |
|
|
50,000 |
Plant Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2015 |
|
|
2015 |
|
|
July |
To Bank (₹3,00,000 + ₹50,000) |
3,50,000 |
Dec 31 |
By Balance c/d |
3,50,000 |
|
|
3,50,000 |
|
|
3,50,000 |
2016 |
|
|
2016 |
|
|
Jan 1 |
To Balance b/d |
3,50,000 |
Dec 31 |
By Balance c/d |
3,50,000 |
|
|
3,50,000 |
|
|
3,50,000 |
2017 |
|
|
2017 |
|
|
Jan 1 |
To Balance b/d |
3,50,000 |
Oct 1 |
By Provision for Depreciation |
1,18,125 |
Oct 1 |
To Bank |
4,00,000 |
Oct 1 |
By Bank |
1,50,000 |
|
|
|
Oct 1 |
By Profit & Loss |
81,875 |
|
|
|
Dec 31 |
By Balance c/d |
4,00,000 |
|
|
7,50,000 |
|
|
7,50,000 |
Provision for Depreciation Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2015 |
|
|
2015 |
|
|
Dec 31 |
To Balance c/d |
26,250 |
Dec 31 |
To Depreciation (₹3,50,000 @ 15% for 6 months) |
|
|
|
26,250 |
|
|
26,250 |
2016 |
|
|
2016 |
|
|
Dec 31 |
To Balance c/d |
78,750 |
Jan 1 |
By Balance b/d |
26,250 |
|
|
|
Dec 31 |
By Depreciation |
52,500 |
|
|
78,750 |
|
|
78,750 |
2017 |
|
|
2017 |
|
|
Oct 1 |
To Plant (₹26,250+ ₹52,500+₹39,375) |
1,18,125 |
Jan 1 |
By Balance b/d |
78,750 |
Dec 31 |
To Balance c/d |
15,000 |
Oct 1 |
By Depreciation (₹3,50,000 @ 15% for 9 months) |
39,375 |
|
|
|
Dec 31 |
By Depreciation (₹4,00,000 x 15% x 3 months) |
15,000 |
|
|
1,33,125 |
|
|
1,33,125 |
Machinery Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2016 |
|
|
2016 |
|
|
Jan 1 |
To Balance b/d Old Machine ₹(10,83,750 + 3,61,250) |
14,45,000 |
Mar 1 |
By Depreciation @15% on (₹14,45,000/4) for 2 months |
9,031 |
Sep 1 |
To Bank New Machinery |
15,00,000 |
Mar 1 |
By Bank (Insurance) |
40,000 |
|
|
|
Mar 1 |
By Profit & Loss (Loss) |
3,12,219 |
|
|
|
Dec 31 |
By Depreciation old: (₹14,45,000/4 x 3) x 15% = ₹1,62,563 New: (₹15,00,000 x 15% x 4/12) = ₹75,000
|
2,37,563 |
|
|
|
Dec 31 |
By Balance c/d: Old: 9,21,187 New: 14,25,000 |
23,46,187 |
|
|
29,45,000 |
|
|
29,45,000 |
2017 |
|
|
2017 |
|
|
Jan 1 |
To Balance b/d: Old: 9,21,187 New: 14,25,000 |
23,46,187 |
Dec 31 |
By Depreciation: Old: 1,38,177 New: 2,13,750
|
3,51,927 |
|
|
|
|
By Balance c/d: Old: 7,83,009 New: 12,11,250 |
19,94,260 |
|
|
23,46,187 |
|
|
23,46,187 |
Working Note:
Computation of Profit or Loss: ₹14,45,000 /4 = ₹3,61,250 |
(-) Depreciation = ₹9,031 |
= ₹3,52,219 |
(-) Sales Proceed = ₹40,000 |
Loss = ₹3,12,219 |
Machinery Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2014 |
|
|
2014 |
|
|
Jul 1 |
To Bank A/c (₹75,000 x 10) |
7,50,000 |
Dec 31 |
By Depreciation |
56,250 |
|
|
|
Dec 31 |
By Balance c/d |
6,93,750 |
|
|
7,50,000 |
|
|
7,50,000 |
2015 |
|
|
2015 |
|
|
Jan 1 |
To Balance b/d |
6,93,750 |
Dec 31 |
By Depreciation |
1,04,063 |
|
|
|
Dec 31 |
By Balance c/d |
5,89,687 |
|
|
6,93,750 |
|
|
6,93,750 |
2016 |
|
|
2016 |
|
|
Jan 1 |
To Balance b/d |
5,89,687 |
Oct 1 |
By Depreciation @ 15% on ₹58,968 for 9 months |
6,634 |
Oct 1 |
To Bank A/c |
1,25,000 |
Oct 1 |
By Bank (Insurance Company) |
45,000 |
|
|
|
Oct 1 |
By Profit & Loss (Loss) |
7,335 |
|
|
|
Dec 31 |
By Depreciation Old: 79,608 New: 4,688 |
84,296 |
|
|
|
Dec 31 |
By Balance c/d Old: 4,51,110 New: 1,20,312 |
5,71,422 |
|
|
7,14,687 |
|
|
7,14,687 |
2017 |
|
|
2017 |
|
|
Jan 1 |
To Balance b/d Old: 4,51,110 New: 1,20,312 |
5,71,422 |
Dec 31 |
By Depreciation Old: 67,667 New: 18,047 |
85,714 |
|
|
|
Dec 31 |
By Balance c/d Old: 3,83,443 New: 1,02,265 |
4,85,708 |
|
|
5,71,422 |
|
|
5,71,422 |
Working Note:
Cost of Machine as on 1 Jan, 2016 is (₹5,89,687 /10) = ₹58,968.8 i.e. ₹58,969
Loss on Sale of Machine = ₹58,969 – (Depreciation = ₹6,634 – Claim = ₹45,000) = ₹7,335
Note: As per the solution, the loss on settle of insurance claim is ₹7,335; however, the answer given in the textbook is ₹7,735.
As per the solution, the balance on machine account is ₹4,85,708; however, the answer given in the textbook is ₹4,85,709.
Books of Kapil Ltd. |
|||||
Machinery Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2011 |
|
|
2011 |
|
|
Jul 1 |
To Bank |
3,50,000 |
Dec 31 |
To Depreciation (10% for 6 months) |
17,500 |
|
|
|
Dec 31 |
By Balance c/d |
3,32,500 |
|
|
3,50,000 |
|
|
3,50,000 |
2012 |
|
|
2012 |
|
|
Jan 1 |
To Balance b/d (M1) |
3,32,500 |
Dec 31 |
By Depreciation M1: 35,000 M2: 11,250 (9 months) M3: 2,500 (3 months) |
48,750 |
Apr 1 |
To Bank (M2) |
1,50,000 |
Dec 31 |
By Balance c/d M1: 2,97,500 M2: 1,38,750 M3: 97,500 |
5,33,750 |
Oct 1 |
To Bank (M3) |
1,00,000 |
|
|
|
|
|
5,82,500 |
|
|
5,82,500 |
2013 |
|
|
2013 |
|
|
Jan 1 |
To Balance b/d M1: 2,97,500 M2: 1,38,750 M3: 97,500 |
5,33,750 |
Jan 1 Jan 1 |
By Bank (M1) By Profit & Loss (Loss) |
1,00,000 1,97,500 |
|
|
|
Dec 31 |
By Depreciation M2: 15,000 M3: 10,000 |
25,000 |
|
|
|
Dec 31 |
By Balance c/d M2: 1,23,750 M3: 87,500 |
2,11,250 |
|
|
5,33,750 |
|
|
5,33,750 |
2014 |
|
|
2014 |
|
|
Jan 1 |
To Balance b/d M2: 1,23,750 M3: 87,500 |
2,11,250 |
Dec 31 |
By Depreciation M2: 15,000 M3: 10,000 |
25,000 |
|
|
|
Dec 31 |
By Balance c/d M2: 1,08,750 M3: 77,500 |
1,86,250 |
|
|
2,11,250 |
|
|
2,11,250 |
2015 |
|
|
|
|
|
Jan 1 |
To Balance b/d M2: 1,08,750 M3: 77,500 |
1,86,250 |
|
|
|
Machinery Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2011 |
|
|
2011 |
|
|
Jan 1 |
To Bank M1 ₹(8,00,000 + 2,00,000) |
10,00,000 |
Dec 31 |
By Balance c/d |
10,00,000 |
|
|
10,00,000 |
|
|
10,00,000 |
2012 |
|
|
2012 |
|
|
Jan 1 |
To Balance b/d (M1) |
10,00,000 |
Dec 31 |
By Balance c/d |
25,00,000 |
May 1 |
To Bank (M2) |
15,00,000 |
|
|
|
|
|
25,00,000 |
|
|
25,00,000 |
2013 |
|
|
2013 |
|
|
Jan 1 |
To Balance b/d |
25,00,000 |
Dec 31 |
By Balance c/d |
25,00,000 |
|
|
25,00,000 |
|
|
25,00,000 |
2014 |
|
|
2014 |
|
|
Jan 1 |
To Balance b/d |
25,00,000 |
Oct 31 |
By Machinery Disposal |
2,00,000 |
Jul 1 |
To Bank (M3) |
12,00,000 |
Dec 31 |
By Balance c/d M1: 8,00,000 M2: 15,00,000 M3: 12,00,000 |
35,00,000 |
|
|
37,00,000 |
|
|
37,00,000 |
2015 |
|
|
2015 |
|
|
Jan 1 |
To Balance b/d M1: 8,00,000 M2: 15,00,000 M3: 12,00,000 |
35,00,000 |
Dec 31 |
By Balance c/d M1: 8,00,000 M2: 15,00,000 M3: 12,00,000 |
35,00,000 |
|
|
35,00,000 |
|
|
35,00,000 |
Provision for Depreciation Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2011 |
|
|
2011 |
|
|
Dec 31 |
To Balance c/d |
1,00,000 |
Dec 31 |
By Depreciation |
1,00,000 |
|
|
1,00,000 |
|
|
1,00,000 |
2012 |
|
|
2012 |
|
|
Dec 31 |
To Balance c/d |
3,00,000 |
Jan 1 |
By Balance b/d |
1,00,000 |
|
|
|
Dec 31 |
By Depreciation M1: 1,00,000 M2: 1,00,000 (Depreciation on M2 for 8 months) |
2,00,000 |
|
|
3,00,000 |
|
|
3,00,000 |
2013 |
|
|
2013 |
|
|
Dec 31 |
To Balance b/d |
5,50,000 |
Jan 1 |
By Balance b/d |
3,00,000 |
|
|
|
Dec 31 |
By Depreciation M1: 1,00,000 M2: 1,50,000 |
2,50,000 |
|
|
5,50,000 |
|
|
5,50,000 |
2014 |
|
|
2014 |
|
|
Jan 31 |
To Machinery Disposal |
76,667 |
Jan 1 |
By Balance b/d |
5,50,000 |
Dec 31 |
To Balance c/d |
7,80,000 |
Oct 31 |
By Depreciation |
16,667 |
|
|
|
Dec 31 |
By Depreciation M1: 80,000 M2: 1,50,000 M3: 60,000 |
2,90,000 |
|
|
8,56,667 |
|
|
8,56,667 |
2015 |
|
|
2015 |
|
|
Dec 31 |
To Balance c/d |
11,30,000 |
Jan 1 |
By Balance b/d |
7,80,000 |
|
|
|
Dec 31 |
By Depreciation M1: 80,000 M2: 1,50,000 M3: 1,20,000 |
3,50,000 |
|
|
11,30,000 |
|
|
11,30,000 |
Machinery Disposal Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2014 |
|
|
2014 |
|
|
Oct 31 |
To Machinery |
2,00,000 |
Oct 31 |
By Depreciation |
76,667 |
|
|
|
Oct 31 |
By Bank (Sales Proceed) |
75,000 |
|
|
|
Oct 31 |
By Profit & Loss (Loss on Sale) |
48,333 |
|
|
2,00,000 |
|
|
2,00,000 |
Working Note:
Computation of Profit or Loss on Disposal:
Total Depreciation charged on Machine till Oct 1, 2014:
₹20,000 + ₹20,000 + ₹20,000 + ₹16,667 = ₹76,667
(2011) (2012) (2013) (2004 Oct)
Value of Machine ob Oct 1, 2014:
= ₹2,00,000 – ₹76,667 = ₹1,23,333
Loss on Sale of Machine:
= ₹1,23,333 - ₹75,000 = ₹48,333 (Loss)
Note: As per the solution, the balance of Machinery Disposal Account transferred to Profit and Loss Account is ₹48,333; however, as per the textbook the answer is ₹58,333.
Truck Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2011 |
|
|
2011 |
|
|
Apr 1 |
To Bank |
10,00,000 |
Dec 31 |
By Balance c/d |
10,00,000 |
|
|
10,00,000 |
|
|
10,00,000 |
2012 |
|
|
2012 |
|
|
Jan 1 |
To Balance b/d |
10,00,000 |
Dec 31 |
By Balance c/d |
10,00,000 |
|
|
10,00,000 |
|
|
10,00,000 |
2013 |
|
|
2013 |
|
|
Jan 1 |
To Balance b/d (T1) |
10,00,000 |
Oct 1 |
By Truck Disposal |
2,00,000 |
Oct 1 |
To Bank (T2) |
1,20,000 |
Dec 31 |
By Balance c/d |
9,20,000 |
|
|
11,20,000 |
|
|
11,20,000 |
Provision for Depreciation Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2011 |
|
|
2011 |
|
|
Dec 31 |
To Balance c/d |
1,50,000 |
Dec 31 |
By Depreciation |
1,50,000 |
|
|
1,50,000 |
|
|
1,50,000 |
2012 |
|
|
2012 |
|
|
Dec 31 |
To Balance c/d |
3,50,000 |
Jan 1 |
By Balance b/d |
1,50,000 |
|
|
|
Dec 31 |
By Depreciation |
2,00,000 |
|
|
3,50,000 |
|
|
3,50,000 |
2013 |
|
|
2013 |
|
|
Oct 1 |
To Truck Disposal |
1,00,000 |
Jan 1 |
By Balance b/d |
3,50,000 |
Dec 31 |
To Balance c/d |
4,46,000 |
Oct 31 |
By Depreciation (till Oct. 9 months) |
30,000 |
|
|
|
Dec 31 |
By Depreciation Old T1: 1,60,000 New T2: 6,000 |
1,66,000 |
|
|
5,46,000 |
|
|
5,46,000 |
Truck Disposal Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2013 |
|
|
2013 |
|
|
Oct 1 |
To Truck A/c |
2,00,000 |
Oct 1 |
By Provision for Depreciation |
1,00,000 |
|
|
|
Oct 1 |
By Insurance Co |
70,000 |
|
|
|
Oct 1 |
By Profit & Loss (Loss on Sale) |
30,000 |
|
|
2,00,000 |
|
|
2,00,000 |
Working Note:
Total Depreciation charged on truck @ 20% |
|
Dec 2011 |
₹ 30,000 |
Dec 2012 |
₹ 40,000 |
Oct 2013 |
₹ 30,000 |
|
₹ 1,00,000 |
Cost of truck at disposal:
= ₹2,00,000 – ₹1,00,000 = ₹1,00,000
Profit or Loss on sales of truck:
= ₹1,00,000 – ₹70,000 = ₹30,000 (Loss)
Computer Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2010 |
|
|
2011 |
|
|
Apr 1 |
To Balance b/d |
50,000 |
Mar 31 |
By Depreciation C1: 12,000 C2: 18,750 C3: 750 |
31,500 |
Jul 1 |
To Bank |
2,50,000 |
|
|
|
Jan 1 |
To Bank |
30,000 |
Mar 31 |
By Balance c/d C1: 38,000 C2: 2,31,250 C3: 29,250 |
2,98,500 |
|
|
3,30,000 |
|
|
3,30,000 |
2011 |
|
|
2012 |
|
|
Apr 1 |
To Balance b/d C1: 38,000 C2: 2,31,250 C3: 29,250 |
2,98,500 |
Mar 31 |
By Depreciation C1: 12,000 C2: 25,000 C3: 3,000 |
40,000 |
|
|
|
Mar 31 |
By Balance c/d C1: 26,000 C2: 2,06,250 C3: 26,250 |
2,58,500 |
|
|
2,98,500 |
|
|
2,98,500 |
2012 |
|
|
2013 |
|
|
Apr 1 |
To Balance b/d C1: 26,000 C2: 2,06,250 C3: 26,250 |
2,58,500 |
Mar 31 |
By Depreciation C1: 12,000 C2: 25,000 C3: 3,000 |
40,000 |
|
|
|
Mar 31 |
By Balance c/d C1: 14,000 C2: 1,81,250 C3: 23,250 |
2,18,500 |
|
|
2,58,500 |
|
|
2,58,500 |
2013 |
|
|
2014 |
|
|
Apr 1 |
To Balance b/d C1: 14,000 C2: 1,81,250 C3: 23,250 |
2,18,500 |
Mar 31 |
By Depreciation C1: 12,000 C2: 25,000 C3: 3,000 |
40,000 |
|
|
|
Mar 31 |
By Balance c/d C1: 2,000 C2: 1,56,250 C3: 20,250 |
1,78,500 |
|
|
2,18,500 |
|
|
2,18,500 |
2014 |
|
|
2014 |
|
|
Apr 1 |
To Balance b/d C1: 2,000 C2: 1,56,250 C3: 20,250 |
1,78,500 |
Apr 1 |
By Bank (C2) By Profit & Loss |
20,000 1,36,250 |
|
|
|
2015 |
|
|
Aug 1 |
To Bank |
80,000 |
Mar 31 |
By Depreciation C1: 2,000 C2: 3,000 C3: 5,333 |
10,333 |
|
|
|
Mar 31 |
By Balance c/d C1: Nil C2: 17,250 C3: 74,667 |
91,917 |
|
|
2,58,500 |
|
|
2,58,500 |
Note:
The answer given in the textbook, the closing balance as on 31st March, 2015 is ₹83,917 but as per the solution the correct closing balance as on 31st March, 2015 is ₹91,917.
Machinery Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2015 |
|
|
2015 |
|
|
Jan 1 |
Balance b/d |
|
Apr 1 |
Machinery Disposal |
2,00,000 |
|
₹(13,00,000 + 2,00,000) |
15,00,000 |
Dec 31 |
Balance c/d |
19,00,000 |
Jul 1 |
Bank A/c |
6,00,000 |
|
|
|
|
|
21,00,000 |
|
|
21,00,000 |
Provision for Depreciation Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2015 |
|
|
2015 |
|
|
Apr 1 |
To Machinery Disposal |
1,30,000 |
Jan 1 |
By Balance c/d |
5,50,000 |
Dec 31 |
To balance c/d |
7,50,000 |
Apr 1 |
By Depreciation |
10,000 |
|
|
|
Dec 31 |
By Depreciation: M1: 2,60,000 M2: 60,000 |
3,20,000 |
|
|
8,80,000 |
|
|
8,80,000 |
Machinery Disposal Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2015 |
|
|
2015 |
|
|
Apr 1 |
To Machinery |
2,00,000 |
Apr 1 |
By Provision for Depreciation |
1,30,000 |
Apr 1 |
To Profit & Loss (profit on sale of machine) |
5,000 |
Apr 1 |
By Bank |
75,000 |
|
|
2,05,000 |
|
|
2,05,000 |
Working Note:
Depreciation charged on ₹2,00,000 of machinery in past three years:
2012 @ 20% = ₹40,000
2013 @ 20% = ₹40,000
2014 @ 20% = ₹40,000
2015 @ 20% = ₹10,000 (for three months)
Total Depreciation Charged = ₹1,30,000
Cost of machine on April 1, 2015 = ₹(2,00,000 – 1,30,000) = ₹70,000
Profit on sale of machine = ₹75,000 – ₹70,000 = ₹5,000
Machinery Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2011 |
|
|
2012 |
|
|
Apr 1 |
To Bank |
1,00,000 |
Mar 21 |
By Depreciation |
15,000 |
|
|
|
|
By Balance c/d |
85,000 |
|
|
1,00,000 |
|
|
1,00,000 |
2012 |
|
|
2013 |
|
|
Apr 1 |
To Balance b/d M1: |
85,000 |
Mar 31 |
By Depreciation M1: 15,000 M2: 28,125 |
43,125 |
Jul 1 |
To Bank M2: |
2,50,000 |
Mar 31 |
By Balance c/d M1: 70,000 M2: 2,21,875 |
2,91,875 |
|
|
3,35,000 |
|
|
3,35,000 |
2013 |
|
|
2014 |
|
|
Apr 1 |
To Balance b/d M1: 70,000 M2: 2,21,875 |
2,91,875 |
Mar 31 |
By Depreciation M1: 15,000 M2: 37,500 |
52,500 |
|
|
|
Mar 31 |
By Balance c/d M1: 55,000 M2: 1,84,375 |
2,39,375 |
|
|
2,91,875 |
|
|
2,91,875 |
2014 |
|
|
2015 |
|
|
Apr 1 |
To Balance b/d M1: 55,000 M2: 1,84,375 |
2,39,375 |
Mar 31 |
By Depreciation M1: 15,000 M2: 37,500 |
52,500 |
|
|
|
Mar 31 |
By Balance c/d M1: 40,000 M2: 1,46,875 |
1,86,875 |
|
|
2,39,375 |
|
|
2,39,375 |
2015 |
|
|
2015 |
|
|
Apr 1 |
To Balance c/d M1: 40,000 M2: 1,46,875 |
1,86,875 |
Oct 1 |
By Depreciation |
7,500 |
|
|
|
Oct 1 |
By Machinery Disposal |
32,500 |
|
|
|
Oct 1 |
By Depreciation M2 |
37,500 |
|
|
|
Mar 31 |
By Balance c/d M2 |
1,09,375 |
|
|
1,86,875 |
|
|
1,86,875 |
Machinery Disposal Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2015 |
|
|
2015 |
|
|
Oct 1 |
To Machinery |
32,500 |
Oct 1 |
By Bank |
25,000 |
|
|
|
Oct 1 |
By Profit & Loss |
7,500 |
|
|
32,500 |
|
|
32,500 |
Furniture Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2014 |
|
|
2015 |
|
|
Oct 1 |
To Bank F1: |
4,50,000 |
Mar 31 |
By Balance c/d |
7,50,000 |
2015 |
|
|
|
|
|
Mar 1 |
To Bank F2: |
3,00,000 |
|
|
|
|
|
7,50,000 |
|
|
7,50,000 |
2015 |
|
|
2016 |
|
|
Apr 1 |
To Balance b/d F1: 4,50,000 F2: 3,00,000 |
7,50,000 |
Mar 31 |
By Balance c/d F1: 4,50,000 F2: 3,00,000 |
7,50,000 |
|
|
7,50,000 |
|
|
7,50,000 |
2016 |
|
|
2016 |
|
|
Apr 1 |
To Balance b/d F1: 4,50,000 F2: 3,00,000 |
7,50,000 |
Jul 1 |
By Furniture Disposal F1: |
4,50,000 |
|
|
|
2017 |
|
|
|
|
|
May 31 |
By Balance c/d F2: |
3,00,000 |
|
|
7,50,000 |
|
|
7,50,000 |
Accumulated Depreciation Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2015 |
|
|
2015 |
|
|
Mar 31 |
To Balance c/d |
37,500 |
Mar 31 |
By Depreciation F1: 33,750 F2: 3,750 |
37,500 |
|
|
37,500 |
|
|
37,500 |
2016 |
|
|
2015 |
|
|
May 31 |
To Balance c/d |
1,44,376 |
Apr 1 |
By Balance b/d |
37,500 |
|
|
|
2016 |
|
|
|
|
|
Mar 31 |
By Depreciation F1: 62,438 F2: 44,438 |
1,06,876 |
|
|
1,44,376 |
|
|
1,44,376 |
2016 |
|
|
2016 |
|
|
Jul 1 |
To Furniture Disposal |
1,09,456 |
Apr 1 Jul 1 |
By Balance b/d By Depreciation |
1,44,376 13,268 |
2017 |
|
|
2017 |
|
|
Mar 31 |
To Balance c/d |
85,960 |
Mar 31 |
By Depreciation |
37,772 |
|
|
1,95,416 |
|
|
1,95,416 |
Furniture Disposal Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2016 |
|
|
2016 |
|
|
Jul 1 |
To Furniture |
4,50,000 |
Jul 1 |
By Accumulated Dep. |
1,09,456 |
|
|
|
Jul 1 |
By Bank (Sales Proceed) |
2,50,000 |
|
|
|
Jul 1 |
By Profit & Loss (Loss on Sale of Furniture) |
1,15,544 |
|
|
4,50,000 |
|
|
4,50,000 |
Working Note:
Computation of Profit or Loss on Sale of Furniture |
|
Total Depreciation Charged |
₹ |
31 March, 2014 |
33,750 |
31 May, 2016 |
62,438 |
1 July, 2016 |
13,268 |
|
1,09,456 |
Cost of furniture at the date of disposal (1 July, 2016) |
|
|
₹ |
Cost of Furniture |
4,50,000 |
Less: Depreciation |
(1,09,456) |
|
3,40,554 |
Less: Sales Proceed |
(2,25,000) |
Loss |
1,15,544 |
Note: As per the solution, the loss on sale of furniture is ₹1,15,544 whereas, as per the textbook, the balance is ₹1,15,546.
As per the solution, the balance of provision for depreciation accounts is ₹85,960 whereas, as per the textbook, the balance is ₹85,959.
(a)
Machinery Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2014 |
|
|
2014 |
|
|
Jan 1 |
To Bank M1: ₹(5,50,000 +50,000) |
6,00,000 |
Dec 31 |
By Depreciation M1: 60,000 M2: 12,333 |
72,333 |
Sep 1 |
To Bank |
3,70,000 |
Dec 31 |
By Balance c/d M1: 5,40,000 M2: 3,57,667 |
8,97,667 |
|
|
9,70,000 |
|
|
9,70,000 |
2015 |
|
|
2015 |
|
|
Jan 1 |
To Balance b/d M1: 5,40,000 M2: 3,57,667 |
8,97,667 |
Dec 31 |
By Depreciation M1: 60,000 M2: 37,000 M3: 56,000 |
1,53,000 |
May 1 |
To Bank M3: 8,40,000 |
8,40,000 |
Dec 31 |
By Balance c/d M1: 4,80,000 M2: 3,20,667 M3: 7,84,000 |
15,84,667 |
|
|
17,37,667 |
|
|
17,37,667 |
2016 |
|
|
2016 |
|
|
Jan 1 |
To Balance b/d M1: 4,80,000 M2: 3,20,667 M3: 7,84,000 |
15,84,667 |
Dec 31 |
By Depreciation M1: 60,000 M2: 37,000 M3: 84,000 |
1,81,000 |
|
|
|
Dec 31 |
By Balance c/d M1: 4,20,000 M2: 2,83,667 M3: 7,00,000 |
14,03,667 |
|
|
15,84,667 |
|
|
15,84,667 |
2017 |
|
|
2017 |
|
|
Jan 1 |
To Balance b/d M1: 4,20,000 M2: 2,83,667 M3: 7,00,000 |
14,03,667 |
Dec 31 |
By Depreciation M1: 60,000 M2: 37,000 M3: 84,000 |
1,81,000 |
|
|
|
Dec 31 |
By Balance c/d M1: 3,60,000 M2: 2,46,667 M3: 6,16,000 |
12,22,667 |
|
|
14,03,667 |
|
|
14,03,667 |
Depreciation Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2014 |
|
|
2014 |
|
|
Dec 31 |
To Machinery |
72,333 |
Dec 31 |
By Profit & Loss |
72,333 |
|
|
72,333 |
|
|
72,333 |
2015 |
|
|
2015 |
|
|
Dec 31 |
To Machinery: |
1,53,000 |
Dec 31 |
By Profit & Loss |
1,53,000 |
|
|
1,53,000 |
|
|
1,53,000 |
2016 |
|
|
2016 |
|
|
Dec 31 |
To Machinery: |
1,81,000 |
Dec 31 |
By Profit & Loss |
1,81,000 |
|
|
1,81,000 |
|
|
1,81,000 |
2017 |
|
|
2017 |
|
|
Dec 31 |
To Machinery: |
1,81,000 |
Dec 31 |
By Profit & Loss |
1,81,000 |
|
|
1,81,000 |
|
|
1,81,000 |
Note: As per the solution, the balance of machine account, as on 01/01/2015 is ₹12,22,667; whereas, as per the textbook, the balance is ₹12,22,666.
(b)
Machinery Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2014 |
|
|
2014 |
|
|
Jan 1 |
To Bank M1: ₹(5,50,000 +50,000) |
6,00,000 |
Dec 31 |
By Balance c/d M1: 6,00,000 M2: 3,70,000 |
9,70,000 |
Sep 1 |
To Bank |
3,70,000 |
|
|
|
|
|
9,70,000 |
|
|
9,70,000 |
2015 |
|
|
2015 |
|
|
Jan 1 |
To Balance b/d M1: 6,00,000 M2: 3,70,000 |
9,70,000 |
Dec 31 |
By Balance c/d M1: 6,00,000 M2: 3,70,000 M3: 8,40,000 |
18,10,000 |
May 1 |
To Bank M3: |
8,40,000 |
|
|
|
|
|
18,10,000 |
|
|
18,10,000 |
2016 |
|
|
2016 |
|
|
Jan 1 |
To Balance b/d M1: 6,00,000 M2: 3,70,000 M3: 8,40,000 |
18,10,000 |
Dec 31 |
By Balance c/d M1: 6,00,000 M2: 3,70,000 M3: 8,40,000 |
18,10,000 |
|
|
18,10,000 |
|
|
18,10,000 |
2017 |
|
|
2017 |
|
|
Jan 1 |
To Balance b/d M1: 6,00,000 M2: 3,70,000 M3: 6,40,000 |
18,10,000 |
Dec 31 |
By Balance c/d M1: 6,00,000 M2: 3,70,000 M3: 8,40,000 |
18,10,000 |
|
|
18,10,000 |
|
|
18,10,000 |
Provision for Depreciation Account |
|||||
Date |
Particulars |
₹ |
Date |
Particulars |
₹ |
2014 |
|
|
2014 |
|
|
Dec 31 |
To Balance c/d |
72,333 |
Dec 31 |
By Depreciation |
72,333 |
|
|
72,333 |
|
|
72,333 |
2015 |
|
|
2015 |
|
|
Dec 31 |
To Balance c/d |
2,25,333 |
Dec 31 |
By Balance b/d |
72,333 |
|
|
|
|
By Depreciation |
1,53,000 |
|
|
2,25,333 |
|
|
2,25,333 |
2016 |
|
|
2016 |
|
|
Dec 31 |
To Balance c/d |
4,06,333 |
Dec 31 |
By Balance b/d |
2,25,333 |
|
|
|
|
By Depreciation |
1,81,000 |
|
|
4,06,333 |
|
|
4,06,333 |
2017 |
|
|
2017 |
|
|
Dec 31 |
To Balance c/d |
5,87,333 |
Dec 31 |
By Balance b/d |
4,06,333 |
|
|
|
|
By Depreciation |
1,81,000 |
|
|
5,87,333 |
|
|
5,87,333 |
Note: As per the solution, the balance of provision for depreciation account, as on 01/01/2015 is ₹5,87,333; whereas, as per the textbook, the balance is ₹5,87,334.
In the books of account, there are two types of arrangements for recording depreciation on fixed assets:
(1) Charging Depreciation to Asset Account:
According to this, depreciation is deducted from the depreciable cost of the asset (credited to the asset account) and charged (or debited) to profit and loss account.
Journal entries under this recording method are as follows:
1. for recording purchase of asset: |
||
Asset A/c |
Dr. |
|
To Bank/ Vendor A/c |
||
(Only in the year of purchase) (With the cost of asset including installation, freight, etc.) |
||
2. Following two entries are recorded at the end of every year
|
||
(a) for deducting depreciation amount from the cost of the asset. |
||
Depreciation A/c |
Dr. |
|
To Asset A/c |
||
(with the amount of depreciation) |
||
(b) for changing depreciation to profit & loss account |
||
Profit & Loss A/c |
Dr. |
|
To Depreciation A/c |
||
(with the amount of depreciation) |
||
3. Balance Sheet Treatment |
||
When this method is used, the fixed asset appears at its net book value (i.e cost less depreciation charged till date) on the asset side of the balance sheet and not at its original cost (also known as historical cost) |
||
(2) Creating Provision for Depreciation Account/ Accumulated Depreciation Account:
This method is designed to accumulate the depreciation provided on asset in a separate account generally called ‘Provision for Depreciation’ or ‘Accumulated Depreciation’ account.
Characteristics:
Asset account continues to appear at its original cost year after year over its entire life:
Depreciation is accumulated on a separate account instead of being adjusted in the asset account at the end of each accounting period.
Following journal entries are recorded under this method:
1. For recording purchase of asset |
||
Asset A/c |
Dr. |
|
To Bank/Vendor A/c |
||
(Only in the year of purchase) (with the cost of asset including installation, expenses etc) (cash/credit purchase) |
||
2. Following two journal entries are recorded at the end of each year: |
||
(a) For crediting depreciation amount to provision for depreciation account |
||
Depreciation A/c |
Dr. |
|
To Provision for depreciation A/c |
||
(with the amount of depreciation)
|
||
(b) for charging depreciation to profit and loss account |
||
Profit & loss |
Dr. |
|
To Depreciation A/c |
||
(With the amount of depreciation) |
||
3. Balance Sheet Treatment: |
||
In the balance sheet, the fixed asset continues to appear at its original cost on the asset side. The depreciation charged till that date appears in the provision for depreciation account, which is shown either on the ‘Liabilities side” of the balance sheet or by way of deduction from the original cost of the asset concerned on the asset side of the balance sheet. |
||
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