NCERT Solutions for Class 11 Accountancy Chapter 6 - Depreciation, Provisions and Reserves

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Short Answer Type Questions

1. What is ‘Depreciation’?

Ans. Depreciation is the reduction in the book value of fixed asset because of usage or with efflux of time or due to obsolescence or accident. Depreciation is a planned, gradual reduction in the recorded value of an asset over its useful life by charging it to expense. Depreciation is applied to fixed assets, which generally experience a loss in their utility over multiple years. The use of depreciation is intended to spread expense recognition over the period of time when a business expects to earn revenue from the use of an assets.

A machinery costing ₹1,00,000 and its useful life is 10 years; so, depreciation is calculated as:

$$\text{Annual Depreciation (p.a.) =}\\\frac{\text{Cost of Asset}}{\text{Expected or Estimated Life of Asset}}\\\text{or,\space Annual Depreciation (p.a.)}\\ =\frac{1,00,000}{10} = ₹ 10,000$$

2. State briefly the need for providing depreciation.

Ans. The needs for providing depreciation are given below:

(i) To ascertain true net profit or net loss: Correct profit or loss can be ascertained when all the expenses and losses incurred for earning revenues are charged to Profit and Loss Account. Assets are used for earning revenues and its cost is charged in form of depreciation from Profit and Loss Account.

(ii) To show true and fair view of financial statements: If depreciation is not charged, assets are shown at higher value than their actual value in the Balance Sheet; consequently, the Balance Sheet does not reflect true and fair view of financial statements.

(iii) For ascertaining the accurate cost of production: Depreciation on plant and machinery and other assets, which are engaged in production, is included in the cost of production. If depreciation is not included, cost of production is underestimated, which will lead to low sale price and thus leads to low profit.

(iv) Distribution of dividend out of profit: If depreciation is not charged, which leads to overestimating of profit and consequently more profit is distributed as dividend, out of capital instead of the profit.

This leads to the flight of scarce capital out of the business.

(v) To provide funds for replacement of assets: Unlike other expenses, depreciation is not a cash expense. So, the amount of depreciation charged will be retained in the business and will be used for replacement of fixed assets after its useful life.

(vi) Consideration of tax: If depreciation is charged, then Profit and Loss Account will disclose lesser profit as to when the depreciation is not charged. This depicts reduced profit and thus the business will be liable for lesser tax amount.

3. What are the causes of depreciation?

Ans. (i) Constant use: The constant use of any asset by a business causes wear and tear, which causes a decrease in the value of those assets. As a result, the capacity of the asset to serve in the business is reduced.

(ii) Expiry of time: With the passage of time, whether assets are used or not, its effective life decreases.

The natural forces like rain, weather, etc. lead to deterioration of the fixed assets.

(iii) Obsolescence: Due to the fast technological innovations and inventions today’s assets may be outdated by tomorrow’s sophisticated assets. This leads to the obsolescence of fixed assets.

(iv) Expiry of legal rights: If an asset is acquired for a specific period of time, then, whether the asset is put to use or not, its value becomes zero at the end of its useful life. For example, if a land is acquired for ₹1,00,000 for 25 years on lease, then each year its value depreciates by $$\frac{1}{25} \text{th}\space\text{of its gross value.}$$At the end of the 25^th year, the value of the lease will be zero.

(v) Accident: An asset may lose its value and damage may happen to it due to mishaps such as a fire accident, theft or a natural calamity. The loss due to accident is permanent in nature.

(vi) Permanent fall in value: Generally, we do not record fluctuations in the market price of the fixed assets in the books. However, if the fall in market price is permanent, it is accounted, which leads to a fall in the value of fixed assets in the books.

4. Explain basic factors affecting the amount of depreciation.

Ans. (i) Total cost of asset: The total cost of an asset is taken into consideration for ascertaining the amount of depreciation. The expenses incurred in acquiring, installing and constructing asset and bringing the asset to its usable condition are included in the total cost of asset.

(ii) Estimated useful life: Every asset has its useful life other than its physical life (in terms of number of years, units, etc.), used by a business. The useful life of an asset is considered to estimate the effective life of a fixed asset. For example, land has indefinite life; however, if business acquires a piece of land on lease for 25 years, then the useful life of the piece of land is considered to be 25 years.

(iii) Estimated scrap value: It is estimated as the net realisable value or sale value of an asset at the end of its effective life. It is deducted from the total cost of an asset. For example, furniture is acquired at ₹50,000 and its effective life is 10 years. After 10 years, the furniture will be sold at ₹10,000. So, depreciation is charged as:

$$\text{Depreciation (p.a.) = }\\\frac{(50,000 - 10,000)}{10}\\=\frac{40,000}{10} = ₹ 4,000$$

5. Distinguish between Straight Line Methodand Written Down Value Method of calculating depreciation.

Ans.

Basis of Difference	Straight Line Method	Written Down Value method
Basis of calculation	Depreciation is calculated on the original cost of an asset.	Depreciation is calculated on the reducing balance, i.e. the book value of an asset.
Amount of depreciation	Equal amount is charged each year over the effective life of the asset.	Diminishing amount of depreciation (on the written down value of asset) is charged each year over the effective life of the asset.
Book value of asset	Book value of the asset becomaes zero at the end of its effective life.	Book value of the asset can never be zero.
Suitability	It is suitable for the assets like patents, copyright, land and buildings etc. which have lesser possibility of obsolescence and lesser repair charges.	It is suitable for assets that need more repair in the later years like, plant and machinery, car, etc.
Effect of depreciation and repair on Profit and Loss account	Unequal effect over the life of remains same over the years but repair cost increases in the later years.	Equal effect over the life of the asset, as depreciation cost is high and repairs are less in the initial years but in the latter years the repair costs increases and depreciation cost decreases.
Recognition under Income Tax Act	It is not recognised under the Income Tax act.	It is recognised under the Income Tax act.

6. “In case of a long term asset, repair and maintenance expenses are expected to rise in later years than in earlier year”. Which method is suitable for charging depreciation if the management does not want to increase burden on Profits and Loss account on account of depreciation and repair.

Ans. If the management does not want to exert undue burden on the profits due to high depreciation and repair costs in the latter years of the assets, then ‘Written Down Method’ should be a preferred method to provide depreciation. This is because the cost of depreciation reduces; whereas, repair and maintenance expenses increase in the latter years. However, on the whole, it does not exert increasing burden on profits.

7. What are the effects of depreciation on Profit and Loss account and Balance Sheet ?

Ans: The effects of depreciation on Profit and Loss Account are given below.

(i) Depreciation increases the debit side of Profit and Loss account and hence reduces net profit.

(ii) Depreciation increases the total expenses, leading to an excess of debit over credit balance.

The effects of depreciation on Balance Sheet are given below.

(i) It reduces the original cost or book value of the concerned asset.

(ii) It reduces the overall balance of asset’s column in the Balance Sheet.

8. Distinguish between ‘Provision’ and ‘Reserve’.

Ans.

Basis of Difference	Provision	Reserve
Meaning	It is created to meet the known liability.	It is created to meet unknown liability.
Nature	Provision is charged against profit.	Reserve is appropriation of the profit.
Purpose	It is created for a specific liability.	It is created for strengthening the financial position.
Mode of creation	It is created by debiting the Profit and Loss account.	It is created by debiting the Profit and Loss Appropriation account.
Use for payment of dividend	It cannot be used for distribution as profit/dividend. It reduced net profit.	Unutilised part can be distributed as dividend. It reduces divisible profits.
Creation	Creation of provision is compulsory. It is created even if there is no profit.	Creation of reserve depends on the discretion of the management. It is created only when there is profit.

9. Give four examples each of ‘Provision’ and ‘Reserves’.

Ans. Four examples of provision are given below.

(i) Provision for bad and doubtful debts

(ii) Provision for discount on debtors

(iii) Provision for depreciation

(iv) Provision for taxation

Four examples of reserve are given below.

(i) General reserve

(ii) Capital reserve

(iii) Dividend equalisation reserve

(iv) Debenture redemption reserve

10. Distinguish between ‘Revenue Reserve’ and ‘Capital Reserve’.

Ans.

Basis of Difference	Revenue Reserve	Capital Reserve
Source	It is created out of revenue profit, i.e. revenue earned from normal activities of business operations.	It is created out of capital profit, i.e. gain from other than normal activities of businesss operations, such as sale of fixed assets, etc.
Dividends	It can be used for dividend distribution.	It cannot be used for dividend distribution.
Purpose	It is created for strengthening the financial position of the business.	It is created for the purpose laid down in the Companies Act.

11. Give four examples each of ‘Revenue Reserve’ and ‘Capital Reserves’.

Ans. (i) Four examples of Revenue Reserve are given below.

(a) General Reserve

(b) Retained Earnings

(d) Debenture Redemption Reserve

(ii) Four examples of Capital Reserve are given below.

(a) Issues of shares at premium

(b) Profit or issue of shares

(d) Profit on redemption of debentures

12. Distinguish between ‘General Reserve’ and ‘Specific Reserve’.

Ans.

Basis of Difference	General Reserve	Specific Reserve
Meaning	When the reserve is created without any specified purpose, the reserve is called general reserve.	When reserve is created for some specified purpose, the reserve is called specific reserve.
Usage	It can used for any purpose.	It cannot be used for any purpose other than the specified purpose for which it is created.
Example	Retained earnings, Reserve funds etc.	Debenture redemption reserve, dividend equalisation reserve, etc.

13. Explain the concept of ‘Secret Reserve’.

Ans. Reserves that are created by overstating liabilities or understating assets are known as secret reserves.

They are not shown in the balance sheet. These reduce tax liabilities, as the liabilities are overstated. It is created by management to avoid competition by reducing profit. Creation of secret reserve is not allowed by Companies Act, 1956 that requires full disclosure of all material facts and accounting policies while preparing final statements.

Long Answer Type Question

14. Explain the concept of depreciation. What is the need for charging depreciation and what are the causes of depreciation?

Ans. Every business acquires fixed assets for its use in the business over a period of time. As the benefits of these assets can be availed over a long period of time (due to their regular use), there exists continuous wear and tear and consequently fall in their value. This fall in the value of fixed assets (due to regular use
or expiry of time) is termed as depreciation.

A machinery that costs ₹1,00,000 and its useful life of 10 years, its depreciation will be calculated as:

$$\text{Annual Depreciation (p.a)=}\\\frac{\text{Cost of Asset}}{\text{Expected or Estimated Life of Asset}}\\\text{or, Annual Depreciation (p.a.)}\\= \frac{1,00,000}{10} = ₹ 10,000$$

The need for charging depreciation are:

(i) To ascertain true net profit or net loss: Correct profit or loss can be ascertained, when all the expenses and losses incurred for earning revenues are charged to Profit and Loss account. Assets are used for earning revenues and its cost is charged in form of depreciation from Profit and Loss account.

(ii) To show true and fair view of financial statements: If depreciation is not charged, assets are shown at higher value than their actual value in the balance sheet; consequently, the balance sheet does not reflect true and fair view of financial statements.

(v) To provide funds for replacement of assets: Unlike other expenses, depreciation is not a cash expense.

So, the amount of depreciation charged will be retained in the business and will be used for replacement of fixed assets after its useful life.

(vi) Consideration of tax: If depreciation is charged, then Profit and Loss account will disclose lesser profit, as compared to when the depreciation is not charged. This depicts reduced profit and thus the business will be liable for lesser tax amount.

The causes for depreciation are as follows:

(i) Constant use: Due to constant use of the fixed assets there exists normal wear and tear that leads to fall in the value of fixed assets.

(ii) Expiry of time: With the passage of time, whether assets are used or not, its effective life decreases. The natural forces like rain, weather, etc. lead to deterioration of the fixed assets.

(iii) Obsolescence: Due to the fast technological innovations and inventions today’s assets may be outdated by tomorrow’s sophisticated assets. This leads to the obsolescence of fixed assets.

(iv) Expiry of legal rights: If an asset is acquired for a specific period of time, then, whether the asset is put to use or not, its value becomes zero at the end of its useful life. For example, if a land is acquired for ₹1,00,000 for 25 years on lease, then each year its value depreciates by $$\frac{1}{25}\space\text{th}\space\text{of its gross value.}$$At the end of the 25^th year, the value of the lease will be zero.

(v) Accident: An asset may lose its value and damage may happen to it due to mishaps such as a fire accident, theft or a natural calamity. The loss due to accident is permanent in nature.

15. Discuss in detail the Straight Line Method and written down value method of depreciation. Distinguish between the two and also give situations where they are useful.

Ans. Straight Line Method

It is a simple method of charging depreciation. Under this method, depreciation is charged on the original cost of an asset, at a fixed rate of percentage. In this method, amount of depreciation remains same from year to year and asset’s value becomes zero at the end of its useful life.

Amount of depreciation is calculated as under:

$$\text{Annual Depreciation (p.a.) = }\\\frac{\text{Original cost Estimated scrap value}}{\text{Estimated useful life of an asset}}$$

Advantages of Straight Line Method

(i) It is simple to calculate.

(ii) Asset can be completely written off, i.e., asset can be depreciated until the net scrap value is zero.

(iii) Same amount of depreciation is charged every year. Therefore, it helps in easy comparison of Profit and Loss Account for different years.

(iv) It is used for assets that have low repairs and maintenance expenses and are continuously used over a period of time.

Limitations of Straight Line Method

(i) Burden of deprecation is more on profit and loss account in the later years, when repair and maintenance costs increase, as asset becomes older.

(ii) Value of asset becomes zero in the books even if asset is still in usable condition in business.

Uses of Straight Line Method

(i) This method is useful where repairs and maintenance expenses on asset are low.

(ii) It is also useful when an asset is continuously used from one year to another.

(iii) It is useful when the value of assets, such as patent, copyright, goodwill, etc., becomes zero.

Written Down Value Method: This method is applicable where depreciation is charged on the diminishing balance, i.e., book value of the asset. In this method, asset’s value goes on diminishing year after year and the amount of depreciation declines.

Rate of depreciation is calculated as follows:

$$\text{R}=\bigg[1 -n\sqrt{\frac{s}{c}}\bigg] × 100$$

Where,

R = rate of depreciation

n = expected useful life of the asset

s = the scrap value

c = the cost of the asset

Advantages of Written Down Value Method

(i) It is based on the logical assumption that asset is used more in the earlier years, so more cost is
charged in form of depreciation.

(ii) It is suitable for the assets where repairs are more in the later years, as depreciation is lesser and on a whole the combined burden of depreciation and repairs exerts equal pressure on the net profit over years.

(iii) This method is accepted by the income tax authorities.

(iv) As more depreciation is charged in the earlier years, so the loss due to obsolescence of the asset is reduced.

Limitations of Written Down Value Method

(i) It is difficult to calculate and is a time consuming process.

(ii) The value of an asset cannot be zero, thus the asset cannot be completely written off.

(iii) There arises shortage of funds for replacement of new asset. This happens due to the fact that the amount of depreciation is retained and used in the business. Consequently, at the end of the useful life of an old asset, business finds it difficult to arrange funds for its replacement.

Uses of Written Down Value Method

(i) It is useful when assets have long life.

(ii) It is useful for those assets that require more repair and maintenance costs in the later years.

(iii) It provides easy calculation to provide depreciation of additional asset purchased during a year.

Depreciation A/c	Dr.
To Assets A/c
(Depreciation charged to Assets Account)
Closing of Depreciation Account
Profit and Loss A/c	Dr.
To Depreciation A/c
(Depreciation transferred to Profit and Loss Account)

Difference between Straight Line Method and Written Down Value Method

Basis of Difference	Straight Line Method	Written Down Method
Basis of calculation	Depreciation is calculated on the original cost of an asset.	Depreciation is calculated on the original cost of an asset.
Amount of depreciation	Equal amount is charged each year over the effective life of the asset.	Diminishing amount of depreciation (on the written down value of asset) is charged each year over the effective life of the asset.
Book value of asset	Book value of the asser becomes zero at the end of its effective life.	Books value of the asset can never be zero.
Suitability	It is suitable for the assets like, patens, copyrights, land and building, etc, which have lesser possibility of obsolescence and lesser repair charges.	It is suitable for assets that needs more repairs and maintanence costs in the later years like, plant and machinery, car etc.
Effect of depreciation and repair on profit and loss account	Unequal effect over the life of the assets, as depreciation remains same over the years but repair cost increases in the later years.	Equal over the life of the asset, as depreciation is high and repairs are less in the intial years but in the latter years the repair cost increases and depreciation cost decreases.
Recognition under Income Tax Act.	It is not recognised under the Income Tax Act.	It is recognised under the Income Tax Act.

16. Describe in detail two methods of recording depreciation. Also give the necessary journal entries.

Ans. The two methods of recording depreciation are diagrammatically presented below.

(i) Charging depreciation to Asset Account: Under this method, depreciation is directly credited to the asset account and no separate account is prepared for provision of depreciation. Under this method, the original cost of an asset and the total amount of depreciation cannot be determined from the Balance Sheet, as the Asset Account appears at its written down value.

When depreciation is charged to Assets Account

(ii) Creating Provision for Depreciation Account: Under this method, depreciation is not credited to the Assets Account; in fact, it is credited to the Provision for Depreciation Account. At the year end, asset is shown at the original cost in the Balance Sheet and total depreciation up to the date of Balance Sheet is shown as Provision for Depreciation Account.

Journal entries for depreciation are:

Charging Depreciation

Depreciation A/c	Dr.
To Provision for Depreciation A/c
(Depreciation charged)
Closing of Depreciation Account
Profit and Loss A/c	Dr.
To Depreciation A/c
(Depreciation account is transferred to Profit and Loss Account)

When the asset is sold, the accumulated depreciation on that asset is credited to the Asset Account by passing the following Journal entry:

Provision for Depreciation A/c	Dr.
To Asset A/c
(Accumulated depreciation transferred to Assets Account)

17. Explain determinants of the amount of depreciation.

Ans. Determinants of the amount of depreciation are as follows:

(i) Total cost of asset: The total cost of an asset is taken into consideration for ascertaining the amount of depreciation. The expenses incurred in acquiring, installing and constructing of assets and bringing the assets to their usable condition are included in the total cost of asset.

(ii) Estimated useful life: Every asset having its useful life other than its physical life, in terms of number of years, units, etc. is considered to estimate the effective life of a fixed asset. For example, land has indefinite life; however, if business acquires a piece of land on lease for 25 years, its useful life is considered to be 25 years.

(iii) Estimated scrap value: It is estimated as the net realisable value or sale value of an asset at the end of its effective life. It is deducted from the total cost of an asset. For example, furniture is acquired at ₹50,000 with its effective life of 10 years. After 10 years, furniture will be sold at ₹10,000. So, depreciation is charged as:

After 10 years, Furniture will be sold at ₹10,000. So, depreciation is charged as:

$$\text{Depreciation (p.a.) =}\\\frac{\text{(50,000 - 10,000)}}{10}\\=\frac{40,000}{10} = ₹4,000$$

18. Name and explain different types of reserves in details.

Ans. Reserves: Reserves are created for strengthening the financial positions and future growth. It is created out of profit earned by business.

The broad classification of reserve is diagrammatically presented below.

Depreciation, Provisions and Reserves_ans 18

(i) Revenue Reserve: It is created out of revenue profit, i.e., revenue earned from normal activities of the business. It can be used for either general purpose or specific purpose. It is of two types:

(a) General Reserve: When the reserve is created without any specified purpose, then the reserve is called general reserve. It is a free reserve and so can be used for any purpose. It can also be used for future growth and expansion. For example, reserve funds, retained earnings, contingencies reserves, etc.

(b) Specific Reserve: When reserve is created for some specific purpose, then the reserve is called specific reserve.

Examples of specific reserve are given below:

(1) Debenture Redemption Reserve

(2) Investment Fluctuation Reserve

(3) Dividend Equalisation Reserve

(4) Workmen Compensation Fund

(ii) Capital Reserve: It is created out of capital profit, i.e., gain from other than normal activities of business operations, such as sale of fixed asset, etc. It is created to meet the capital loss. It cannot be distributed as dividend. The example of capital reserves are given below.

(a) Premium on issue of shares

(b) Premium on issue of debentures

(d) Profit on sale of fixed assets

(e) Profit on reissue of forfeited shares

(f) Profit prior to incorporation

(iii) Secret Reserves: Reserves that are created by overstating liabilities or understating assets are known as secret reserves. They are not shown in the Balance Sheet. These reduce tax liabilities, as the liabilities are overstated. It is created by management to avoid competition by reducing profit. Creation of secret reserve is not allowed by Companies Act, 1956, which requires full disclosure of all materials facts and accounting policies, while preparing final statements.

19. What are ‘provisions’. How are they created? Give accounting treatment in case of provision for doubtful Debts.

Ans. Provisions are the amount that is created against profit to meet the known liability; however, the amount of liability is uncertain. It is created for specific liability. Creation of provision is compulsory even if, there is no profit. The underlying principle behind creation of provision is conservatism, viz., to prepare for future loss. The main rationale for making provisions is to provide cushion to the future business
performance against the uncertain and unforeseen losses that may arise from the past transactions. A few examples of provisions are given below.

(i) Provision for bad and doubtful debts

(ii) Provision for depreciation

(iii) Provision for taxation

(iv) Provision for discount on debtors

Provisions are made by debiting the Profit and Loss Account on estimate basis. The provisions are created on the basis of past experiences. Every year, a business may experience common losses, such as depreciation of fixed assets, taxation, etc., which are although known; however, their exact amount of future period is unknown. Thus, business creates provision of certain percentage every year, which is truly based on the intuitions and past experiences. These unascertained liabilities in form of provisions are kept aside, which help future business activities, undisturbed from the future losses.

Accounting treatment for provision for doubtful debts is:

Profit and Loss A/c	Dr.
To Provision for Doubtful Debts
(Provision for doubtful debt made)

Numerical Questions

20. On April 01, 2010, Bajrang Marbles purchased a machine for ₹1,80,000 and spent ₹10,000 on its carriage and ₹10,000 on its installation. It is estimated that its working life is 10 years and after 10 years its scrap value will be ₹20,000.

(a) Prepare Machine account and Depreciation account for the first four years by providing depreciation on Straight Line Method. Accounts are closed on March 31^st every year.

(b) Prepare Machine account, Depreciation account and Provision for Depreciation account (or accumulated depreciation account) for the first four years by providing depreciation using straight line method. Accounts are closed on March 31^st every year.

Ans. (a)

Books of Bajrang Marbles

Dr.	Machinery A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2010			2011
Apr 01	To Bank A/c	1,80,000	Mar 31	By Depreciation A/c	18,000
Apr 01	To Bank A/c	10,000	Mar 31	By Balance c/d	1,82,000
	(Carriage Expenses)
Apr 01	To Bank A/c	10,000
	(Installation Expenses)
		2,00,000			2,00,000
2011			2012
Apr 01	To Balance b/d	1,82,000	Mar 31	By Depreciation A/c	18,000
			Mar 31	By Balance c/d	1,64,000
		1,82,000			1,82,000
2012			2013
Apr 01	To Balance b/d	1,64,000	Mar 31	By Depreciation A/c	18,000
			Mar 31	By Balance c/d	1,46,000
			1,64,000		1,64,000
2013			2014
Apr 01	To Balance b/d	1,46,000	Mar 31	By Depreciation A/c	18,000
			Mar 31	By Balance c/d	1,28,000
		1,46,000			1,46,000

Dr.	Depreciation A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2011			2011
Mar. 31	To Machine A/c	18,000	Mar. 31	By Profit & Loss A/c	18,000
		18,000			18,000
2012			2012
Mar. 31	To Machine A/c	18,000	Mar. 31	By Profit & Loss A/c	18,000
		18,000			18,000
2013			2013
Mar. 31	To Machine A/c	18,000	Mar. 31	By Profit & Loss A/c	18,000
		18,000			18,000
2014			2014
Mar. 31	To Machine A/c	18,000	Mar. 31	By Profit & Loss A/c	18,000
		18,000			18,000

(b)

Books of Bajrang Marbles

Dr.	Machinery A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2010			2011
Apr. 01	To Bank A/c	1,80,000	Mar. 31	By Balance c/d	2,00,000
Apr. 01	To Bank A/c	10,000
	(Carriage Expenses)
Apr. 01	To Bank A/c	10,000
	(Installation Expenses)
		2,00,000			2,00,000
2011			2012
Apr. 01	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. 01	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 01	To Balance b/d	2,00,000	Mar 31	By Balance c/d	2,00,000
		2,00,000			2,00,000

Dr.	Depreciation A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2011			2011
Mar. 31	To Provision for	18,000	Mar 31	By Profit & Loss A/c	18,000
	Depreciation A/c
		18,000			18,000
2012			2012
Mar. 31	To Provision for Depreciation A/c	18,000	Mar. 31	By Profit & Loss A/c	18,000
		18,000			18,000
2013			2013
Mar. 31	To Provision for	18,000	Mar. 31	By Profit & Loss A/c	18,000
	Depreciation A/c
		18,000			18,000
2014			2014
Mar. 31	To Provision for	18,000	Mar. 31	By Profit & Loss A/c	18,000
	Depreciation A/c
		18,000			18,000

Dr.	Provision of Depreciation A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2011			2011
Mar 31	To Balance c/	18,000	Mar 31	By Depreciation A/c	18,000
		18,000			18,000
2012			2011
Mar 31	To Balance c/d	36,000	Apr 01	By Balance b/d	18,000
			2012
			Mar 31	By Depreciation A/c	18,000
		36,000			36,000
2013			2012
Mar 31	To Balance c/d	54,000	Apr 01	By Balance b/d	36,000
			2013
			Mar 31	By Depreciation A/c	18,000
		54,000			54,000
2014			2013
Mar 31	To Balance c/d	72,000	Apr 01	By Balance b/d	54,000
			2014
			Mar 31	By Depreciation A/c	18,000
		72,000			72,000

Working Notes:

Cost of Asset = ₹1,80,000 + ₹10,000 + ₹10,000 = ₹2,00,000

We have,

Yearly Depreciation =

$$\text{Yearly Depreciation =}\\\frac{\text{Cost of Asset - Estimated Residential value}}{\text{Estimated useful life of the Asset}}\\=\frac{₹2,00,000 - ₹20,000}{10}\\=\frac{₹ 1,80,000}{10}$$

= ₹18,000

Books of Ashok Ltd.

21. On July 01, 2010, Ashok Ltd. purchased a machine for ₹1,08,000 and spent ₹12,000 on its installation. At the time of purchase it was estimated that the effective commercial life of the machine will be 12 years and after 12 years its salvage value will be ₹12,000.

Prapare Machine Account and Depreciation Account in the books of Ashok Ltd. For first three years, if depreciation is written off according to Straight Line Method. The accounts are closed on December 31^st, every year.

Dr.	Machinery A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2010			2010
Jul. 01	To Bank A/c	1,08,000	Dec. 31	By Depreciation A/c	4,500
Jul. 01	To Bank A/c	12,000	Dec. 31	By Balance c/d	1,15,500
	(Installation Expenses)
		1,20,000			1,20,000
2011			2011
Jan. 01	To Balance b/d	1,15,500	Dec 31	By Depreciation A/c	9,000
			Dec 31	By Balance c/d	1,06,500
		1,15,500			1,15,500
2012			2013
Jan. 01	To Balance b/d	1,06,500	Dec 31	By Depreciation A/c	9,000
			Dec 31	By Balance c/d	97,500
		1,06,500			1,06,500

Dr.	Depreciation A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2010			2010
Dec. 31	To Machine A/c	4,500	Dec. 31	By Profit & Loss A/c	4,500
		4,500			4,500
2011			2011
Dec. 31	To Machine A/c	9,000	Dec. 31	By Profit & Loss A/c	9,000
		9,000			9,000
2012			2012
Dec. 31	To Machine A/c	9,000	Dec. 31	By Profit & Loss A/c	9,000
		9,000			9,000

Working Notes:

Cost of machine = ₹1,08,000 + ₹12,000 = ₹1,20,000

Yearly Depreciation =

$$\frac{\text{Cost of Asset - Estimated Residential value}}{\text{Estimated useful life of the Asset}}\\=\frac{₹ 1,20,000 - ₹12,000}{12}\\=\frac{₹1,08,000}{12}=₹9,000$$

22. Reliance Ltd. purchased a second hand machine for ₹56,000 on October 01, 2011 and spent ₹28,000 on its overhaul and installation before putting it to operation. It is expected that the machine can be sold for ₹6,000 at the end of its useful life of 15 years. Moreover, an estimated cost of ₹1,000 is expected to be incurred to recover the salvage value of ₹6,000. Prepare Machine account and Provision for Depreciation account for the first three years charging depreciation by Fixed Installment Method.

Accounts are closed on March 31, every year.

Books of Reliance Ltd.

Dr.	Machinery A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2011			2012
Oct 01	To Bank A/c	56,000	Mar 31	By Balance c/d	84,000
Oct 01	To Bank A/c	28,000
	(Overhaul and Installation Expenses)
		84,000			84,000
2012			2013
Apr 01	To Balance b/d	84,000	Mar 31	By Balance c/d	84,000
		84,000			84,000
2013			2014
Apr 01	To Balance b/d	84,000	Mar 31	By Balance c/d	84,000
		84,000			84,000

Dr.	Provision for Depreciation A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2012			2012
Mar. 31	To Balance c/d	2,633	Mar 31	By Depreciation A/c	2,633
		2,633			2,633
2013			2012
Mar. 31	To Balance c/d	7,900	Apr. 01	By Balance b/d	2,633
			2013
			Mar. 31	By Depreciation A/c	5,267
		7,900			7,900
2014			2013
Mar. 31	To Balance c/d	13,167	Apr. 01	By Balance b/d	7,900
			2014
			Mar. 31	By Depreciation A/c	5,267
		13,167			13,167

Working Notes:

Net Residual asset = Sale value – Expenses incurred for the disposal of the Asset

= ₹6,000 – ₹1,000 = ₹5,000

Cost of asset = ₹56,000 + ₹28,000 = ₹84,000

$$\text{Yearly Depreciation =}\\\frac{\text{Cost of Asset - Estimated Residential value}}{\text{Estimated useful life of the Asset}}\\=\frac{₹84,000 - ₹5,000}{15}\\=\frac{₹79,000}{15} = ₹5,267$$

23. Berlia Ltd. Purchased a second hand machine for ₹56,000 on July 01, 2015 ans spent ₹24,000 on its repair and installation and ₹5,000 for its carriage. On September 01, 2016, it purchased another machine for ₹2,50,000 and spent ₹10,000 on its installation.

(a) Depreciation is provided on machinery@10% p.a. on Original Cost Method annually on December 31. Prepare Machinery account and Depreciation account from the year 2015 to 2018.

(b) Prepare Machinery account and Depreciation if depreciation is provided on machinery @ 10% p.a. on Written Down Value Method annually on December 31.

(a)

Books of Berlia Ltd

Dr.	Machinery A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2015			2015
Jul. 01	To Bank A/c	56,000	Dec. 31	By Depreciation A/c
	(Purchase Price of machine 1)			machine 1	4,250
			Dec. 31	By Balance c/d	80,750
July 01	To Bank A/c	24,000
	(Repair and Installation charges for machine 1)
July 01	To Bank A/c	5,000
	(Carriage Expenses for machine 1)
		85,000			85,000
2016			2016
Jan. 01	To Balance b/d	80,750	Dec. 31	By Depreciation A/c
Sep. 01	To Bank A/c	2,50,000		machine 1 8,500
	(Purchase price of			machine 2 8,667	17,167
	machine 2)		Dec. 31	By Balance c/d	3,23,583
Sep. 01	To Bank A/c	10,000
	(Installation charges
	of machine 2)	3,40,750			3,40,750
2017			2017
Jan. 01	To Balance b/d	3,23,583	Dec. 31	By Depreciation A/c
				Dec. 31 8,500
				machine 1 8,500
				machine 2 26,000	34,500
			Dec. 31	By Balance b/d	2,89,083
		3,23,583			3,23,583
2018
Jan. 01	To Balance b/d	2,89,083	Dec. 31	By Depreciation A/c
				machine 1 8,500
				machine 2 26,000	34,500
			Dec. 31	By Balance b/d	2,54,583
		2,89,083			2,89,083

Dr.	Depreciation A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2015			2015
Dec. 31	To Machine A/c	4,250	Dec 31	By Profit Loss A/c	4,250
		4,500			4,500
2016			2016
Dec. 31	To Machine A/c	17.167	Dec. 31	By Profit & Loss A/c	17.167
		17,167			17,167
2017			2017
Dec 31	To Machine A/c	34,500	Dec. 31	By Profit Loss A/c	34,500
		34,500			34,500
2018			2018
Dec 31	To Machine A/c	34,500	Dec 31	By Profit Loss A/c	34,500
		34,500			34,500

Working Notes:

Cost of machine 1 = ₹56,000 + ₹24,000 + ₹5,000 = ₹85,000

Cost of machine 2 = ₹2,50,000 + ₹10,000 = ₹2,60,000

Dr.	Depreciation Chart	Cr.

Year	Machine	Duration	Calculation	Depreciation
2015
	Machine 1	6 months	$$= 85,000×\frac{85}{100}×\frac{6}{12}$$	4,250
			Total	4,250
2016
	Machine 1	12 months	$$= 85,000×\frac{10}{100}$$	8,500
	Machine 2	4 months	$$= 2,60,000×\frac{10}{100}×\frac{4}{12}$$	8,667
			Total	17,167
2017
	Machine 1	12 months	$$= 85,000×\frac{10}{100}$$	8,500
	Machine 2	4 months	$$2,60,000×\frac{10}{100}×\frac{4}{12}$$	8,667
			Total	17,167
2017
	Machine 1	12 months	$$= 85,000×\frac{10}{100}$$	8,500
	Machine 2	4 months	$$= 2,60,000×\frac{10}{100}×\frac{4}{12}$$	8,667
			Total	17,167
2017
	Machine 1	12 months	$$= 85,000×\frac{10}{100}$$	8,500
	Machine 2	12 months	$$= 2,60,000×\frac{10}{100}$$	26,000
			Total	34,500
2018
	Machine 1	12 months	$$= 85,000×\frac{10}{100}$$	8,500
	Machine 2	12 months	$$= 2,60,000×\frac{10}{100}$$	26,000
			Total	34,500

(b)

Books of Berlia Ltd

Dr.	Machinery A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2015			2015
July 01	To Bank A/c	56,000	Dec. 31	By Depreciation A/c
	(Purchase Price of			machine	4,250
	machine 1)		Dec. 31	By Balance c/d	80,750
July 01	To Bank A/c	24,000
	(Repair & Installation charges
	for machine 1)
July 01	To Bank A/c	5,000
	(Carriage expenses for machines 1)
		85,000			85,000
2016			2016
Jan. 01	To Balance b/d	80,750	Dec. 31	By Depreciation A/c
Sep. 01	To Bank A/c	2,50,000		machine 1 8,075
	(Purchase price of			machine 2 8,667	16,742
	machine 2)		Dec, 31	By Balance c/d
Sep. 01	To Bank A/c	10,000		machine 1 72,675
	(Installation charges for machine 2)			machine 2 2,51,333	3,24,008
		3,40,750			3,40,750
2017			2017
Jan. 01	To Balance b/d	3,24,008	Dec. 31	By Depreciation A/c
				machine 1 7,268
				machine 2 25,133	32,401
			Dec. 31	By Balance c/d	2,91,607
		3,24,008			3,24,008
2018			2018
Jan. 01	To Balance b/d	2,91,607	Dec. 31	By Depreciation A/c
				machine 1 6,540
				machine 2 22,620	29,161
			Dec. 31	By Balance c/d	2,62,446
		2,91,607			2,91,607

Dr.	Depreciation A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2015			2015
Mar. 31	To Machine A/c	4,250	Mar. 31	By Profit & Loss A/c	4,250
		4,250			4,250
2016			2016
Mar. 31	To Machine A/c	16,742	Mar. 31	By Profit & Loss A/c	16,742
		16,742			16,742
2017			2017
Mar. 31	To Machine A/c	32,401	Mar. 31	By Profit & Loss A/c	32,401
		32,401			32,401
2018			2019
Mar. 31	To Machine A/c	29,160	Mar. 31	By Profit & Loss A/c	29,160
		29,160			29,160

Working Notes for Written Down Value Method

Year	Machine	Book Value	Duration	Calculation	Depreciation
2015
	Machine 1	85,000	6 months	= 85,000×\frac{10}{100}×\frac{6}{12}	4,250
				Total	4,250
2016
	Machine 1	80,750	12 months	$$= 80,750×\frac{10}{100}$$	8,075
	Machine 2	2,60,000	4 months	$$= 2,60,000×\frac{10}{100}×\frac{4}{12}$$	8,667
				Total	16,742
2017
	Machine 1	72,675	12 months	$$= 72,675×\frac{10}{100}$$	7,268
	Machine 2	2,51,333	12 months	$$= 2,51,333×\frac{10}{100}$$	25,133
				Total	32,401
2018
	Machine 1	65,407	12 months	$$= 65,407×\frac{10}{100}$$	6,541
	Machine 2	2,26,200	12 months	$$= 2,26,200×\frac{10}{100}$$	22,620
				Total	29,261

24. Ganga Ltd. purchased a second hand machine on January 01, 2014 for ₹5,50,000 and ₹50,000 on its installation. On September 01, 2014 it purchased another machine for ₹3,70,000. On May 01, 2015 it purchased another machine for ₹8,40,000 (including installation expenses).

Depreciation was provided on machine @10% p.a. on original cost method annually on December 31. Prepare:

(a) Machinery account and Depreciation account for the years 2014, 2015, 2016 and 2017.

(b) If depreciation is accumulated in provision for Depreciation account then prepare Machine account and Provision for Depreciation account for the years 2014, 2015, 2016 and 2017.

Ans. (a)

Books of Ganga Ltd.

Dr.	Machinery A/c	Cr.

Date	Particulars	Amount ₹	Date	Particulars	Amount ₹
2014			2015
Jan. 01	To Bank A/c	5,50,000	Dec. 31	By Depreciation A/c
	(Purchase Price of			machine 1 60,000
	machine 1)		Dec. 31	machine 2 12,333	72,333
Jan. 01	To Bank A/c	50,000	Dec. 31	By Balance c/d	8,97,667
	(Installation charges for
	machine 1)
Sep. 01	To Bank A/c	3,70,000
	(Purchase price of
	machine 2)	9,70,000			9,70,000
2015			2015
Jan. 01	To Balance b/d	8,97,667	Dec. 31	By Depreciation A/c
	To Bank A/c	8,40,000		machine 1 60,000
	(Purchase price of			machine 2 37,000
	machine 3)			machine 3 56,000	1,53,000
			Dec. 31	By Balance c/d	15,84,667
		17,37,667			17,37,667
2016			2016
Jan. 01	To Balance b/d	15,84,667	Dec. 31	By Depreciation A/c
				machine 1 60,000
				machine 2 37,000
				machine 3 84,000	1,81,000
			Dec. 31	By Balance c/d	14,03,667
		15,84,667			15,84,667
2017			2017
Jan. 01	To Balance b/d	14,03,667	Dec. 31	By Depreciation A/c
				machine 1 60,000
				machine 2 37,000
				machine 3 84,000	1,81,000
			Dec. 31	By Balance c/d	12,22,667
		14,03,667			14,03,667

Dr.	Depreciation A/c	Cr.

Date	Particulars	Amount ₹	Date	Particulars	Amount ₹
2014			2014
Dec. 31	To Machine A/c	72,333	Dec. 31	By Profit & Loss A/c	72,333
		72,333			72,333
2015			2015
Dec. 31	To Machine A/c	1,53,000	Dec. 31	By Profit & Loss A/c	1,53,000
		1,53,000			1,53,000
2016			2016
Dec. 31	To Machine A/c	1,81,000	Dec. 31	By Profit & Loss A/c	1,81,000
		1,81,000			1,81,000
2017			2017
Dec. 31	To Machine A/c	1,81,000	Dec. 31	By Profit & Loss a/c	1,81,000
		1,81,000			1,81,000

(b) When Provision for Depreciation account is maintained separately.

Dr.	Machinery A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2014			2014
Jan. 01	Jan. 01	6,00,000	Dec. 31	By Balance c/d	9,70,000
Sep. 01	To Bank A/c	3,70,000
		9,70,000			9,70,000
2015			2015
Jan. 01	To Balance b/d	9,70,000	Dec. 31	By Balance c/d	18,10,000
May 01	To Bank A/c	8,40,000
		18,10,000			18,10,000
2016			2016
Jan. 01	To Balance b/d	18,10,000	Dec. 31	By Balance c/d	18,10,000
		18,10,000			18,10,000
2017			2017
Jan. 01	To Balance b/d	18,10,000	Dec. 31	By Balance c/d	18,10,000
		18,10,000			18,10,000

Dr.	Provision for Depreciation A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2014			2014
Dec. 31	To Balance c/d	72,333	Dec. 31	By Depreciation A/c
				machine 1 60,000
				machine 2 12,333	72,333
		72,333			72,333
2015			2015
Dec. 31	To Balance c/d	2,25,333	Jan. 01	By Balance b/d	72,333
			Dec. 31	By Depreciation A/c
				machine 1 60,000
				machine 2 37,000
				machine 3 56,000	1,53,000
		2,25,333			2,25,333
2016			2016
Dec. 31	To Balance c/d	4,06,333	Jan. 01	By Balance b/d	2,25,333
			Dec. 31	By Depreciation A/c
				machine 1 60,000
				machine 2 37,000
				machine 3 84,000	1,81,000
		4,06,333			4,06,333
2017			2017
Dec. 31	To Balance c/d	5,87,000	Jan. 01	By Balance b/d	4,06,333
			Dec. 31	By Depreciation A/c
				machine 1 60,000
				machine 2 37,000
				machine 3 84,000	1,81,000
		5,87,000			5,87,000

25. Azad Ltd. purchased furniture on October 01, 2014 for ₹4,50,000. On March 01, 2015 it purchased another furniture for ₹3,00,000. On July 01, 2016 it sold off the first furniture purchased in 2014 for ₹2,25,000. Depreciation in 2014 for ₹2,25,000. Depreciation is provided at 15% p.a. on Written Down Value Method each year. Accounts are closed each year on March 31. Prepare funiture account and Accumulated Depreciation account for the years ended on March 31, 2015, March 31, 2016 and March 31, 2017. Also give the above two accounts if Furniture Disposal account is opened.

Books of Azad Ltd.

Dr.	Funiture A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2014			2015
Oct. 01	To Bank A/c	4,50,000	Mar. 31	By Balance c/d	7,50,000
	(Purchase of furniture 1)
2015
Mar. 01	To Bank A/c	3,00,000
	(Purchase of furniture 2)
		7,50,000			7,50,000
2015			2016
Apr. 01	To Balance b/d	7,50,000	Mar. 31	By Balance c/d	7,50,000
		7,50,000			7,50,000
2016			2016
Apr. 01	To Balance b/d	7,50,000	July 01	By Furniture Disposal A/c	4,50,000
			2017
			Mar. 31	By Balance c/d	3,00,000
		7,50,000			7,50,000

Dr.	Accumulated Depreciation A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2015			2015
Mar. 31	To Balance c/d	37,500	Mar. 31	By Depreciation A/c
				furniture 1 33,750
				furniture 2 3,750	37,500
		37,500			37,500
Mar. 31	To Balance c/d	1,44,376	Apr. 01	By Balance b/d	37,500
			2016
			Mar. 31	By Depreciation A/c
				furniture 1 62,438
				furniture 2 44,438	1,06,876
		1,44,376			1,44,376
2016			2016
July 01	To Furniture Disposal A/c	1,09,456	Apr. 01	By Balance b/d	1,44,376
2017			July 01	By Depreciation A/c
Mar. 31	To Balance c/d	85,960		furniture 1	13,268
			2017
			Mar. 31	By Depreciation A/c
				furniture 2 37,772	37,772
		1,95,416			1,95,416

Dr.	Furniture Disposal A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2016			2016
Jul. 01	To Furniture A/c	4,50,000	July 01	By Accumulated	1,09,456
				Depreciation A/c
			July 01	By Bank A/c	2,25,000
			July 01	By Profit & Loss A/c (loss)	1,15,544
		4,50,000			4,50,000

Working Notes for Written Down Method

Accounting Period	Furniture	Book Value	Book Value	Particulars	Amount (₹)\
2014-2015
	Furniture 1	4,50,000	6 months	$$= 4,50,000×\frac{15}{100}×\frac{6}{12}$$	33,750
	Furniture 2	3,00,000	1 months	$$= 3,00,000×\frac{15}{100}×\frac{1}{12}$$	3,750
				Total	37,500
2015-2016
	Furniture 1	= 4,50,000 – 33,750 = 4,16,250	12 months	$$= 4,16,250×\frac{15}{100}$$	62,438
	Furniture 2	= 3,00,000 – 3,750 = 2,96,250	12 months	$$= 2,96,250×\frac{15}{100}$$	44,438
				Total	1,06,876
2016-2017
	Furniture 1	= 4,16,250 – 62,438 = 3,53,812	12 months	$$= 3,53,812×\frac{15}{100}×\frac{3}{12}$$	13,268
	Furniture 2	= 2,96,250 – 44,438 = 2,51,812	12 months	$$= 2,51,812×\frac{15}{100}$$	37,772
				Total	51,040

Book value of furniture 1

= ₹3,53,812 – ₹13,268 (as of Jul 01, 2014) = ₹3,40,544

Sale price of Furniture 1 = ₹2,25,000

Loss on sale of furniture 1

= ₹3,40,544 – ₹2,25,000 = ₹1,15,544

26. M/s Lokesh Fabrics purchased a Textile Machine on April 01, 2011 for ₹1,00,000. On July 01, 2012 another machine costing ₹2,50,000 was purchased . The machine purchased on April 01, 2011 was sold for ₹25,000 on October 01, 2015. The company charges depreciation @15% p.a. on Straight Line Method. Prepare Machinery account and Machinery Disposal account for the year ended March 31, 2016.

Ans.

Book of M/s. Lokesh Fabrics

Dr.	Machinery A/c	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2011			2012
Apr. 01	To Bank A/c (i)	1,00,000	Mar. 31	By Depreciation A/c	15,000
			Mar. 31	By Balance c/d	85,000
		100,000			100,000
2012			2013
Apr. 01	To Balance b/d	85,000	Mar 31	By Depreciation A/c
July 01	To Bank A/c (ii)	2,50,000		(i) 15,000
				(ii) 28,125	43,125
			Mar 31	By Balance c/d
				(i) 70,000
				(ii) 2,21,875	2,91,875
		3,35,000			3,35,000
2013			2014
Apr. 01	To Balance b/d		Mar 31	By Depreciation A/c
	(i) 70,000			(i) 15,000
	(ii) 2,21,875	2,91,875		(ii) 37,500	52,500
			Mar 31	By Balance c/d
				(i) 55,000
				(ii) 1,84,375	2,39,375
		2,91,875			2,91,875
2014			2015
Apr. 01	To Balance b/d		Mar 31	By Depreciation A/c
	(i) 55,000			(i) 15,000
	(ii) 1,84,375	2,39,375		(ii) 37,500	52,500
			Mar 31	By Balance c/d
				(i) 40,000
				(ii) 1,46,875	1,86,875
		2,39,375			2,39,375
2015			2015
Apr. 01	To Balance b/d		Oct. 01	By Depreciation A/c	7,500
	(i) 40,000
	(ii) 1,46,875	1,86,875
			Oct. 01	By Machinery Disposal A/c	32,500
			2016
			Mar 31	By Depreciation A/c	37,500
			Mar 31	By Balance c/d	1,09,375
		1,86,875			1,86,875

Dr.	Machinery Disposal Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2015			2015
Oct. 01	To Machinery A/c	32,500	Oct. 01	By Bank A/c	25,000
			Oct. 01	By Profit and Loss A/c	7,500
		32,500			32,500

27. The following balance appear in the books of Crystal Ltd. on Jan 01, 2015.

Machinery account on ₹15,00,000

Provision for Depreciation account ₹5,50,000

On April 01, 2015 a machinery which was purchased on January 01, 2012 for ₹2,00,000 was sold for ₹75,000. A new machine was purchased on July 01, 2015 for ₹6,00,000. Depreciation is provided on machinery at 20% p.a. on Straight Line Method and books are closed on December 31 every year.
Prepare the Machinery account and Provision for Depreciation account for the year ending December 31, 2015.

Ans.

Dr.	Machinery Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2015			2015
Jan. 01	To Balance A/c	15,00,000	Apr. 01	By Machinery Disposal A/c	2,00,000
	(13,00,000 + 2,00,000)
July 01	To Bank A/c	6,00,000	Dec. 31	By Balance c/d	19,00,000
		21,00,000			21,00,000

Dr.	Provision for Depreciation Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2015			2015
Apr 01	To Machinery Disposal A/c	1,30,000	Jan 01	By Balance b/d	5,50,000
Apr 01	To Balance c/d	7,50,000	Apr 01	By Depreciation A/c	10,000
			Dec. 31	By Depreciation A/c
				(i) 2,60,000
				(ii) 60,000	3,20,000
		8,80,000			8,80,000

Working Notes:

Machine Sold on July 01, 2015

Year	Opening Balance Depreciation		Closing Balance
2012	2,00,000 - 40,000	=	1,60,000
2013	1,60,000 - 40,000	=	1,20,000
2014	1,20,000 - 40,000	=	80,000
2015	80,000 - 10,000	=	70,000
	Accumulated Depreciation = 1,30,000

Value on April 01, 2015 = (70,000)

Less: Sale = 75,000

Profit on sale of Machinery = 5,000

Dr.	Machinery Disposal Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2015			2015
Apr 01	To Machinery A/c	2,00,000	Apr 01	By Provision for Depreciation A/c	1,30,000
Apr 01	To Profit and Loss A/c (Profit)	5,000	Apr 01	By Bank A/c	75,000
		2,05,000			2,05,000

28. M/s. Excel Computers has a debit balance of ₹50,000 (original cost ₹ 1,20,000) in Computers account on
April 01, 2010. On July 01, 2010 it purchased another computer costing ₹2,50,000. One more computer
was purchased on January 01, 2011 for ₹30,000. On April 01, 2014 the computer which was purchased on July 01, 2010 became obsoletes and was sold for ₹20,000. A new version of the IBM computer was purchased on August 01, 2014 for ₹80,000. Show Computers account in the books of Excel Computers
for the years ended on March 31, 2011, 2012, 2013, 2014 and 2015. The computer is depreciated @10 p.a. on Straight Line Method basis.

Ans.

Books of M/s Excel Computer

Dr.	Computer Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2010			2011
Apr 01	To Balance b/d (i)	50,000	Mar 31	By Depreciation A/c
Jul 01	To Bank A/c (ii)	2,50,000		(i) 12,000
				(ii) 18,750
				(iii) 750	31,500
2011
Jan 01	To Bank A/c (iii)	30,000	Mar 31	By Balance c/d
				(i) 38,000
				(ii) 2,31,250
				(iii) 29,250	2,98,500
		3,30,000			3,30,000
2011			2012
Apr 01	To Balance b/d		Mar 31	By Depreciation A/c
	(i) 38,000			(i) 12,000
	(ii) 2,31,250			(ii) 25,000
	(iii) 29,250	2,98,500		(iii) 3,000	40,000
			Mar 31	By Balance c/d
				(i) 26,000
				(ii) 2,06,250
				(iii) 26,250	2,58,500
		2,98,500			2,98,500
			2,98,500		2,98,500
2012			2013
Aug 01	To Balance b/d		Mar 31	By Depreciation A/c
	(i) 26,000			(i) 12,000
	(ii) 2,06,250			(ii) 25,000
	(iii) 26,250	2,58,500		(iii) 3,000	40,000
			Mar 31	By Balance c/d
				(i) 14,000
				(ii) 1,81,250
				(iii) 23,250	2,18,500
		2,58,500			2,58,500
2013			2014
Apr 01	To Balance b/d		Mar 31	By Depreciation A/c
	(i) 14,000			(i) 12,000
	(ii) 1,81,250			(ii) 25,000
	(iii) 23,250	2,18,500		(iii) 3,000	40,000
			Mar 31	By Balance c/d
				(i) 2,000
				(ii) 1,56,250
				(iii) 20,250	1,78,500
		2,18,500			2,18,500
2014			2014
Apr 01	To Balance c/d		Apr 01	By Bank A/c (ii)	20,000
	(i) 2,000		Apr 01	By Profit and Loss A/c (Loss)	1,36,250
	(ii) 1,56,250
	(iii) 20,250	1,78,500
			2015
Aug 01	To Bank A/c	80,000	Mar 31	By Depreciation A/c
				(i) 2,000
				(iii) 3,000
				(iv) 5,333	10,333
			Mar 31	By Balance c/d
				(iii) 17,250
				(iv) 74,667	91917
		2,58,500			2,58,500

29. Carriage Transport Company purchased 5 trucks at the cost of ₹2,00,000 each on April 01, 2011. The
company writes off depreciation @ 20% p.a. on original cost and closes its books on December 31, every year. On October 01, 2013, one of the trucks is involved in an accident and is completely destroyed.
Insurance company has agreed to pay ₹70,000 in full settlement of the claim. On the same date the company purchased a second hand truck for ₹1,00,000 and spent ₹20,000 on its overhauling. Prepare
Truck account and Provision for Depreciation account for the three years ended on December 31, 2013.
Also give Truck account if Truck Disposal account is prepared.

Ans.

Books of Carriage Transport Computer

Dr.	Truck Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2011			2011
Apr 01	To Bank A/c	10,00,000	Dec. 31	By Balance c/d	10,00,000
		10,00,000			10,00,000
2012			2012
Jan 01	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 01	To Balance b/d	10,00,000	Oct. 01	By Truck Disposal A/c	2,00,000
Oct. 01	To Bank A/c	1,20,000	Dec. 31	By Balance c/d	9,20,000
		11,20,000			11,20,000

Dr.	Provision for Depreciation Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2011			2011
Dec. 31	To Balance c/d	1,50,000	Dec. 31	By Depreciation A/c	1,50,000
		1,50,000			1,50,000
2012			2012
Dec. 31	To Balance c/d	3,50,000	Jan. 01	By Balance c/d	1,50,000
			Dec. 31	By Depreciation A/c	2,00,000
		3,50,000			3,50,000
2013			2013
Oct. 01	To Truck Disposal A/c	1,00,000	Jan. 01	By Balance b/d	3,50,000
Oct. 01	To Balance c/d	4,46,000	Oct. 01	By Depreciation A/c
				(9 Months)	30,000
			Dec. 31	By Depreciation A/c
				(1,60,000 + 6,000)	1,66,000
		5,46,000			5,46,000

Dr.	Truck Disposal Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2013			2013
Oct. 01	To Truck A/c	2,00,000	Oct. 01	By Provision for	1,00,000
				Depreciation A/c
			Oct. 01	By Insurance Co. (Insurance Claim)	70,000
			Oct. 01	By Profit and Loss A/c (Loss)	30,000
		2,00,000			2,00,000

Working Notes:

Truck involved in accident

Year	Opening Balance		Depreciation		Closing Balance
Apr. 01, 2011	2,00,000	—	30,000	=	1,70,000
Jan 01, 2012	1,70,000	—	40,000	=	1,30,000
Jan 01, 2013	1,30,000	—	30,000	=	1,00,000
	Accumulated Depreciation	=	1,00,000

Value on Oct 01, 2013	=	1,00,000
Less: Insurance Claim	=	70,000
Loss on Accident	=	30,000

30. Saraswati Ltd. purchased a machinery costing ₹10,00,000 on January 01, 2011. A new machinery was purchased on 01 May, 2012 for ₹15,00,000 and another on July 01, 2014 for ₹12,00,000. A part of the machinery which originally cost ₹2,00,000 in 2011 was sold for ₹75,000 on April 30, 2014. Show the machinery account, provision for depreciation account and machinery disposal account from 2011 to 2015 if depreciation is provided at 10% p.a. on original cost and account are closed on December 31, every year.

Ans.

Books of Saraswati Ltd.

Dr.	Machinery Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2011			2011
Jan. 01	To Bank A/c (i) (8,00,000 + 2,00,000)	10,00,000	Dec. 01	By Balance c/d	10,00,000
		10,00,000			10,00,000
2012			2012
Jan. 01	To Balance b/d	10,00,000	Dec. 31	By Balance c/d	25,00,000
May 01	To Bank A/c (ii)	15,00,000
		25,00,000			25,00,000
2013			2013
Jan. 01	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. 01	To Balance b/d	25,00,000	Apr. 30	By Machinery Disposal A/c	2,00,000
July 01	To Bank A/c (ii)	12,00,000	Dec. 31	By Balance c/d
				(i) 8,00,000
				(ii) 15,00,000
				(iii) 12,00,000	35,00,000
		37,00,000			37,00,000
2015			2015
Jan. 01	To Balance b/d		Dec. 31	By Balance c/d
	(i) 8,00,000			(i) 8,00,000
	(ii) 15,00,000			(ii) 15,00,000
	(iii) 12,00,000	35,00,000		(iii) 12,00,000	35,00,000
		35,00,000			35,00,000

Dr.	Provision for Depreciation Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2011			2011
Dec. 01	To Balance c/d	1,00,000	Dec. 31	By Depreciation A/c (i)	1,00,000
		1,00,000			1,00,000
2012			2012
Dec. 31	To Balance c/d	3,00,000	Jan. 01	By Balance b/d	1,00,000
			Dec. 31	By Depreciation A/c
				(i) 1,00,000
				(iii) (8 months) 1,00,000	2,00,000
		3,00,000			3,00,000
2013			2013
Dec. 31	To Balance c/d	5,50,000	Jan. 01	By Balance b/d	3,00.000
			Dec. 31	By Depreciation
				(i) 1,00,000
				(ii) 2,50,000	2,50,000
		5,50,000			5,50,000
2014			2014
Apr. 30	To Machinery Disposal A/c	66,667	Jan. 01	By Balance b/d	5,50,000
Dec. 31	To Balance c/d	7,80,000	Apr. 30	By Depreciation A/c	6,667
			Dec. 31	By Depreciation A/c
				(i) 80,000
				(ii) 1,50,000
				(iii) 60,000	2,90,000
		8,46,667			8,46,667
2015			2015
Dec. 31	To Balance c/d	11,30,000	Jan. 01	By Balance b/d	7,80,000
			Dec. 31	By Depreciation A/c
				(i) 80,000
				(ii) 1,50,000
				(iii) 1,20,000	3,50,000
		11,30,000			11,30,000

Dr.	Machinery Disposal Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2014			2014
Apr 30	To Machinery A/c	2,00,000	Apr. 30	By Provision for Depreciation A/c	66,667
			Apr. 30	By Bank A/c	75,000
			Apr. 30	By Profit and Loss A/c (Loss) A/c	58,333
		2,00,000			2,00,000

Working Notes:

	Opening Balance		Depreciation		Closing Balance
2011	2,00,000	—	20,000	=	1,80,000
2012	1,80,000	—	20,000	=	1,40,000
2013	1,60,000	—	20,000	=	1,40,000
2014	1,40,000		6,667	=	1,33,333
	Accumulated Depreciation	=	66,667

Value of Machine on April 30, 2014 = 2,00,000 – 66,667 = ₹133,333

Loss on Sale of Machine = (1, 33,333 – 75,000) = ₹58,333 (Loss)

31. On July 01, 2011 Ashwani purchased a machine for ₹2,00,000 on credit. Installation expenses ₹25,000 are paid by cheque. The estimated life is 5 years and its scrap value after 5 years will be ₹20,000.

Depreciation is to be charged on Straight Line basis. Show the journal entry for the year 2011 and prepare necessary ledger accounts for first three years.

Ans.

Books of Ashwani

Journal

Date	Particualrs		L. F.	Debit Amount ₹	Credit Amount ₹
2011
Jul. 01	Machinery A/c	Dr.		2,25,000
	To Creditors for Machinery A/c				2,00,000
	To Bank A/c				25,000
	(Being Machinery bought on credit and ₹25,000 paid for installation through cheque)
2011
Dec. 31	Depreciation A/c	Dr.		20,500
	To Machinery A/c			20,500
	(Being Depreciation charged on Machinery)
2011
Dec. 31	Profit & Loss A/c	Dr.		20,500
	To Depreciation A/c				20,500
	(Being Depreciation transferred to Profit & Loss A/c)
2012
Dec. 31	Depreciation A/c	Dr.		41,000
	To Machinery A/c				41,000
	(Being Depreciation charged on Machinery)
2012
Dec. 31	Profit and Loss A/c	Dr.		41,000
	To Depreciation A/c				41,000
	(Being Depreciation transferred to Profit and Loss Account)
2013
Dec. 31	Depreciation A/c	Dr.		41,000
	To Machinery A/c				41,000
	(Being Depreciation charged on Machinery)
2013
Dec. 31	Profit and Loss A/c	Dr.		41,000
	To Depreciation A/c				41,000
	(Being Depreciation transferred to Profit and Loss Account)

Ledger

Dr.	Machinery Account	Cr.

Date	Particualrs	Amount (₹)	Date	Particualrs	Amount (₹)
2011			2011
Jul 01	To Creditors for Machinery A/c	2,00,000	Dec. 31	By Depreciation A/c	20,500
Jul 01	To Bank A/c	25,000	Dec. 31	By Balance c/d	2,04,500
		2,25,000			2,25,000
2012			2012
Jan 01	To Balance b/d	2,04,500	Dec. 31	By Depreciation A/c	41,000
			Dec. 31	By Balance c/d	1,63,500
		2,04,500			2,04,500
2013			2013
Jan 01	To Balance c/d	1,63,500	Dec. 31	By Depreciation A/c	41,000
			Dec. 31	By Balance c/d	1,22,500
		1,63,500			1,63,500

Working Notes:

Calculation of annual depreciation

$$\text{Depreciation (p.a.)}\\=\frac{\text{(2,00,000 + 25,000 – 20,000)}}{5}\\= ₹41,000\space\text{per annum}$$

32. On October 01, 2010, a Truck was purchased for ₹ 8,00,000 by Laxmi Transport Ltd. Depreciation was provided at 15% p.a. on the diminishing balance basis on this truck. On December 31, 2013 this Truck was sold for ₹5,00,000. Accounts are closed on 31^st March every year. Prepare a Truck Account for the four years.

Ans.

Books of Laxmi Transport Ltd.

Dr.	Truck Account	Cr.

Date	Particualrs	Amount (₹)	Date	Particualrs	Amount (₹)
2010			2011
Oct. 01	To Bank A/c	8,00,000	Mar. 31	By Depreciation A/c	60,000
			Mar. 31	By Balance c/d	7,40,000
		8,00,000			8,00,000
2011			2012
Apr 01	To Balance b/d	7,40,000	Mar. 31	By Depreciation A/c	1,11,000
			Mar. 31	By Balance c/d	6,29,000
		7,40,000			7,40,000
2012			2013
Apr 01	To Balance b/d	6,29,000	Mar. 31	By Depreciation A/c	94,350
			Mar. 31	By Balance c/d	5,34,650
		6,29,000			6,29,000
2013			2013
Apr. 01	To Balance b/d	5,34,650	Dec. 31	By Depreciation A/c (9 months)	60,148
Dec. 31	To Profit and Loss A/c (Profit)	25,498	Dec. 31	By Bank A/c	5,00,000
		5,60,148			5,60,148

Note: As per the solution, the profit on the sale of truck, as on December 31, 2013 is ₹25,498; however, the answer given in the book is ₹58,237.

33. Kapil Ltd. purchased a machinery on July 01, 2011 for ₹3,50,000. It purchased two additional machines, on April 01, 2012 costing ₹1,50,000 and on October 01, 2012 costing ₹1,00,000. Depreciation is provided @ 10% p.a. on Straight Line basis. On January 01, 2013, first machinery become useless due to technical changes. This machinery was sold for ₹1,00,000. Prepare machinery account for 4 years on the basis of
calendar year.

Ans.

Books of Kapil Ltd.

Dr.	Machinery Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2011			2011
Jul. 01	To Bank A/c (i)	3,50,000	Dec. 31	By Depreciation A/c (6 months)	17,500
			Mar. 31	By Balance c/d	3,32,500
		3,50,000			3,50,000
2012			2012
Jan 01	To Balance b/d	3,32,500	Dec. 31	By Depreciation A/c
Apr. 01	To Bank A/c (ii)	1,50,000		(i) 35,000
Oct. 01	To Bank A/c (iii)	1,00,000		(ii) (9 months) 11,250
				(iii) (3 months) 2,500	48,750
			Dec. 31	By Balance c/d
				(i) 2,97,500
				(ii) 1,38,750
				(iii) 97,500	5,33,750
		5,82,500			5,82,500
2013			2013
Jan 01	To Balance b/d		Jan 01	By Bank A/c (i)	1,00,000
	(i) 2,97,500		Jan 01	By Profit and Loss A/c (Loss)	1,97,500
	(ii) 1,38,750		Dec. 31	By Depreciation A/c
	(iii) 97,500	5,33,750		(i) 15,000
				(ii) 10,000	25,000
			Dec. 31	By Balance c/d
				(ii) 1,23,750
				(iii) 87,500	2,11,250
		5,33,750			5,33,750
2014			2014
Jan. 01	To Balance b/d		Dec. 31	By Depreciation A/c
	(i) 1,23,750			(ii) 15,000
	(ii) 87,500	2,11,250		(iii) 10,000	25,000
			Dec. 31	By Balance c/d
				(i) 1,08,750
				(iii) 77,500	1,86,250
		2,11,250			2,11,250

34. On January 01, 2011, Satkar Transport Ltd., purchased 3 buses for ₹10,00,000 each. On July 01, 2013, one bus was involved in an accident and was completely destroyed and ₹7,00,000 were received from the Insurance Company in full settlement. Depreciation is written off @15% p.a. on Diminishing Balance Method. Prepare Bus account from 2011 to 2014. Books are closed on December 31 every year.

Ans.

Books of Satkar Transport Ltd.

Dr.	Bus Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2011			2011
Jan. 01	To Bank A/c	30,00,000	Dec. 31	By Depreciation A/c	4,50,000
			Dec. 31	By Balance c/d	25,50,000
		30,00,000			30,00,000
2012			2012
Jan 01	To Balance b/d	25,50,000	Dec. 31	By Depreciation A/c	3,82,500
			Dec. 31	By Balance c/d	21,67,500
		25,50,000			25,50,000
2013			2013
Jan 01	To Balance b/d	21,67,500	July 01	By Depreciation A/c	54,187
July 01	By Profit and Loss A/c (Profit)	31,687		(6 months)
			July 01	By Insurance Co. (Insurance)	7,00,000
			July 01	By Depreciation A/c	2,16,750
			Dec. 31	By Balance c/d	12,28,250
		21,99,187			21,99,187
2014			2014
Jan. 01	To Balance b/d	12,28,250	Dec. 31	By Depreciation A/c	1,84,237
			Dec. 31	By Balance c/d	10,44,013
		12,28,250			12,28,250

35. On October 01, 2011 Juneja Transport Company purchased 2 Trucks for ₹10,00,000 each. On July 01, 2013, one Truck was involved in an accident and was completely destroyed and ₹6,00,000 were received from the insurance company in full settlement. On December 31, 2013 another truck was involved in an accident and destroyed partially, which was not insured. It was sold off for ₹1,50,000. On January 31, 2014 company purchased a fresh truck for ₹12,00,000. Depreciation is to be provided at 10% p.a. on the written down value every year. The books are closed every year on March 31. Give the Truck account from 2011 to 2014.

Ans.

Books of Juneja Transport Company

Dr.	Truck Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2011			2012
Oct. 01	To Bank A/c	20,00,000	Mar. 31	By Depreciation A/c	1,00,000
			Mar. 31	By Balance c/d	19,00,000
		20,00,000			20,00,000
2012			2013
Apr 01	To Balance b/d	19,00,000	Mar. 31	By Depreciation A/c	1,90,000
			Mar. 31	By Balance c/d	17,10,000
		19,00,000			19,00,000
2013			2013
Apr 01	To Balance b/d	17,10,000	July 01	By Depreciation A/c (3 months on one Truck)	21,375
			July 01	By Bank A/c (Insurance Claim)	6,00,000
			July 01	By Profit and Loss A/c (Loss)	2,33,625
			Dec. 31	By Depreciation A/c (9 months on 2 Truck)	64,125
			Dec. 31	By Bank A/c	1,50,000
			Dec. 31	By Profit and Loss A/c (Loss)	6,40,875
2014			2014
Jan. 31	To Bank A/c	12,00,000	Mar. 31	By Depreciation A/c (2 months)	20,000
			Mar. 31	By Balance c/d	11,80,000
		29,10,000			29,10,000

Note: As per solution, loss on truck I is as ₹2,33,625; however as per. NCERT book, loss is of ₹3,26,250.

Truck-1

Working Notes:

	Opening Balance		Depreciation		Closing Balance
Oct. 01, 2011	10,00,000	—	50,000 (6 Months)	=	9,50,000
Apr. 01, 2012	9,50,000	—	95,000	=	8,55,000
Apr. 01, 2013	8,55,000	—	21,375 (3 Months)	=	8,33,625

Value on Dec. 31, 2013	= 8,33,625
less: Insurance Claim	= (6,00,000)
Loss on Truck – 1	= ₹2,33,625

Truck-2

Working Notes:

	Opening Balance		Depreciation		Closing Balance
Oct. 01, 2011	10,00,000	—	50,000 (6 Months)	=	9,50,000
Apr. 01, 2012	9,50,000	—	95,000	=	8,55,000
Apr. 01, 2013	8,55,000	—	64,125 (9 Months)	=	7,90,875

Value on Dec. 31, 2013	= 7,90,875
Less: Sale of Truck	= (1,50,000)
Loss on Truck – 2	= ₹6,40,875

36. A Noida based Construction Company owns 5 cranes and the value of this asset in its books on April 01, 2017 is ₹40,00,000. On October 01, 2017 it sold one of its cranes whose value was ₹5,00,000 on April 01, 2017 at a 10% profit. On the same day it purchased 2 cranes for ₹4,50,000 each. Prepare Cranes Account.It closes the books on December 31 and provides for depreciation on 10% written down value.

Ans.

Dr.	Cranes Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2017			2017
Apr. 01	To Balance b/d (35,00,000 + 5,00,000)	40,00,000	Oct. 01	By Depreciation A/c (at 10% on ₹5,00,000 for six months)	25,000
Oct. 01	To Profit and Loss A/c (Profit)	47,500	Oct. 01	By Bank A/c	5,22,500
Oct. 01	To Bank A/c (4,50,000 × 2)	9,00,000		$$\bigg(4,75,000×\frac{110}{100}\bigg)$$
			Dec. 31	By Depreciation A/c
				$$35,00,000×\frac{10}{100}×\frac{9}{12} = 2,62,500$$
				$$9,00,000 ×\frac{10}{100}×\frac{6}{12}= 22,500$$	2,85,000
			Dec. 31	By Balance c/d 32,37,500 + 8,77,500	41,15,000
		49,47,500			49,47,500

37. Shri Krishan Manufacturing Company purchased 10 machines for ₹75,000 each on July 01, 2014. On October 01, 2016, one of the machines got destroyed by fire and an insurance claim of ₹45,000 was admitted by the company. On the same date another machine is purchased by the company for ₹1,25,000. The company writes off 15% p.a. depreciation on Written Down value basis. The company maintains the calendar year as its financial year. Prepare the Machinery account from 2014 to 2017.

Ans.

Book of Shri Krishna Manufacturing Company

Dr.	Machinery Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2014			2014
July 01	To Bank A/c (75,000 × 10)	7,50,000	Dec. 31	By Depreciation A/c	56,250
			Dec. 31	By Balance c/d	6,93,750
		7,50,000			7,50,000
2015			2015
Jan 01	To Balance b/d	6,93,750	Dec. 31	By Depreciation A/c	1,04,,063
			Dec. 31	By Balance c/d	5,89,687
		6,93,750			6,93,750
2016			2016
Jan 01	To Balance b/d	5,89,687	Oct. 01	By Depreciation A/c (@ 15% on ₹58,969 for 9 months)	6,634
Oct. 01	To Bank A/c	1,25,000	Oct. 01	By Bank A/c (Insurance Co.)	45,000
			Oct. 01	By Profit and Loss A/c (Loss)	7,335
			Dec. 31	By Depreciation A/c
				(i) 79,608
				(ii) 4,688	84,296
			Dec. 31	By Balance c/d
				(i) 4,51,110
				(ii) 1,20,312	5,71,422
		7,14,687			7,14,687
2017			2017
Jan. 01	To Balance b/d		Dec. 31	By Depreciation A/c
	(i) 4,51,110			(i) 67,667
	(ii) 1,20,312	5,71,422		(ii) 18,047	85,714
			Dec. 31	By Balance c/d
				(i) 4,51,110
				(ii) 1,20,312	5,71,422
		7,14,687			7,14,687
2017			2017
Jan. 01	To Balance b/d		Dec. 31	By Depreciation A/c
	(i) 4,51,110			(i) 67,667
	(ii) 1,20,312	5,71,422		(ii) 18,047	85,714
			Dec. 31	By Balance c/d
				(i) 3,83,443
				(ii) 1,02,265	4,85,708
		5,71,422			5,71,422

Working Notes:

Machine Costing ₹ 75,000 sold on Oct. 01 2002

	Opening Balance		Depreciation		Closing Balance
July 01, 2014	75,000	—	5,625 (6 months)	=	69,375
July 01, 2015	69,375	—	10,406	=	58,969
July 01, 2016	58,969	—	6,634 (9 Months)	=	52,335

Value on Oct. 01, 2016	= 52,335
Less:Insurance Claim	= (45,000)
Loss	= ₹7,335

38. On January 01, 2014, a Limited Company purchased machinery for ₹20,00,000. Depreciation is provided @15% p.a. on Diminishing Balance Method. On March 01, 2016, one fourth of machinery was damaged by fire and ₹40,000 were received from the insurance company in full settlement. On September 01, 2016 another machinery was purchased by the company for ₹15,00,000. Write up the Machinery account from 2016 to 2017. Books are closed on December 31, every year.

Ans.

Dr.	Machinery Account	Cr.

Date	Particulars	Amount ₹	Date	Particulars	Amount ₹
2016			2016
Jan 01	To Balance b/d (i)		Mar. 01	By Depreciation A/c
	(10,83,750 + 3,61,250)	14,45,000		(1/4 Machine for 2 Months)	9,031
Sep 01	To Bank A/c (ii)	15,00,000	Mar. 01	By Bank A/c (Insurance claim)	40,000
			Mar. 01	By Profit and Loss A/c (loss)	3,12,219
			Dec. 31	By Depreciation A/c
				(i) 1,62,563 (3/4^th of machine)
				(ii) 75,000	2,37,563
			Dec. 31	By Balance c/d
				(i) 9,21,187
				(ii) 14,25,000	23,46,187
		29,45,000			29,45,000
2017			2017
Jan 01	To Balance b/d		Dec. 31	By Depreciation A/c
	(i) 9,21,187			(i) 1,38,178
	(ii) 14,25,000	23,46,187		(ii) 2,13,750	3,51,928
			Dec. 31	By Balance c/d
				(i) 7,83,009
				(ii) 12,11,250	19,94,259
		23,46,187			23,46,187

Working Notes:

Machine (i)

Years	January 01		Depreciation (15%. p.a.)		Closing Balance
2014	20,00,000	—	3,00,000	=	17,00,000
2015	17,00,000	—	2,55,000	=	14,45,000

1/4th of Machine (i)

Years	Opening Balance		Depreciation (15%. p.a.)		Closing Balance
2014	5,00,000	—	75,000	=	4,25,000
2015	4,25,000	—	63,750	=	3,61,250
2016	3,61,250	—	9,031 (2 months)		3,52,219

Value on 1^st Mar, 2016	= 3,52,219
Less: Insurance Claim	= (40,000)
Loss	= 3,12,219

39. A Plant was purchased on 1st July, 2015 at a cost of ₹3,00,000 and ₹50,000 were spent on its installation. The depreciation is written off at 15% p.a. on the Straight Line Method. The plant was sold for ₹1,50,000 on October 01, 2017 and on the same date a new Plant was installed at the cost of ₹4,00,000 including purchasing value. The accounts are closed on December 31 every year.

Show the Machinery account and Provision for Depreciation account for 3 years.

Ans.

Dr.	Plant Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2015			2015
July 01	To Bank A/c	3,50,000	Dec. 31	By Balance c/d	3,50,000
		3,50,000			3,50,000
2016			2016
Jan. 01	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. 01	To Balance b/d	3,50,000	Oct. 01	By Provision for Depreciation A/c	1,18,125
Oct. 01	To Bank A/c	4,00,000	Oct. 01	By Bank A/c	1,50,000
			Oct. 01	By Profit and Loss A/c (Loss)	81,875
			Dec. 31	By Balance c/d	4,00,000
		7,50,000			7,50,000

Dr.	Provision for Depreciation Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2015			2015
Dec. 31	To Balance c/d	26,250	Dec. 31	By Depreciation A/c	26,250
		26,250			26,250
2016			2016
Dec. 31	To Balance c/d	78,750	Jan. 01	By Balance b/d	26,250
			Dec. 31	By Depreciation A/c	52,500
		78,750			78,750
2017			2017
Oct. 01	To Plant A/c	1,18,125	Jan. 01	By Balance b/d	78,750
Dec. 31	To Balance c/d	15,000	Oct. 01	By Depreciation A/c (i) (9 months)	39,375
			Dec. 31	By Depreciation A/c (ii) (3 months)	15,000
		1,33,125			1,33,125

40. An extract of Trial balance from the books of Tahiliani and Sons Enterprises on March 31, 2017 is given below:

Name of the Account	Amount (Dr.) (₹)	Amount (Cr.) (₹)
Sundry debtors	50,000
Bad debts	6,000
Provision for doubtful debts		4,000

Additional Information:

Bad Debts proved bad but not recorded amounted to ₹2,000.
Provision is to be maintained at 8% of Debtors.

Give necessary accounting entries for writing off the bad debts and creating the provision for doubtful debts account. Also show the necessary accounts.

Ans.

Journal Entires

Date	Particulars		Debit Amount (₹)	Credit Amount (₹)
March 31	Bad Debt A/c	Dr.	2,000
	To Debtors A/c			2,000
	(Being Further bad debt charged from Debtors Account)
March 31	Provision for Doubtful Debt A/c	Dr.	8,000
	To Bad Debt A/c			8,000
	(Being Amount of bad debt transferred to Provision for Doubtful Debt Account)
March 31	Profit and Loss A/c	Dr.	7,840
	To Provision for Doubtful Debt A/c			7,840
	(Being Amount of Provision for Doubtful Debt transferred to Profit and Loss Account)

Dr.	Bad Debts Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2017			2017
Mar. 31	To Balance b/d	6,000	Mar. 31	By Provision for Doubtful
Mar. 31	To Debtors A/c	2,000		Debt A/c	8,000
		8,000			8,000

Dr.	Debtors Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2017			2017
Mar. 31	To Balance b/d	50,000	Mar. 31	By Bad Debt A/c	2,000
				By Balance c/d	48,000
		50,000			50,000

Dr.	Provision for Doubtful Debts Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2017			2017
Mar. 31	To Bad Debt (6,000 + 2,000)	8,000	Apr. 01	By Balance b/d	4,000
Mar. 31	To Balance b/d (48,000 × 8%)	3,840	Mar. 31	By Balance c/d	7,840
		11,840			11,840

41. The following information are extract from the Trial Balance of M/s Nisha traders on 31 March 2017.

	₹
Sundry Debtors	80,500
Bad debts	1,000
Provision for bad debts	5,000
Additional Information
Bad Debts	500
Provision is to be maintained at 2% of Debtors.
Prepare Bad Debts Account, Provision for Bad Debts Account and Profit and Loss Account.

Ans.

Dr.	Bad Debt Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2017			2017
Mar. 31	To Balance b/d	1,000	Mar. 31	By Provision for Bad Debts A/c	1,500
Mar. 31	To Debtors A/c	500
		1,500			1,500

Dr.	Provision for Bad debt Account	Cr.

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2017			2017
Mar. 31	To Bad Debt A/c	1,500	Mar. 31	By Balance b/d	5,000
Mar. 31	To Profit and Loss A/c	1,900
Mar. 31	To Profit and Loss A/c	1,600
		5,000			5,000