11th | chapter:15 | Depreciation | Question No. 17 to 20

Question 17:

The original cost of furniture amounted to `4,000 and it is decided to write off 5% on the original cost as Depreciation at the end of each year. Show the Ledger Account as it will appear during the first four years. Show also how the same account will appear if it was decided to write off 5% p.a. on the diminishing balance of the asset each year.

Answer:

Furniture Account (Original Cost Method)
Dr.								Cr.
Date	Particulars	J.F.	( `)	Date	Particulars	J.F.	( `)
I year				I year
Jan.01	Bank		4,000	Dec.31	Depreciation		200
				Dec.31	Balance c/d		3,800
			4,000				4,000
II year				II year
Jan.01	Balance b/d		3,800	Dec.31	Depreciation		200
				Dec.31	Balance c/d		3,600
			3,800				3,800
III year				III year
Jan.01	Balance b/d		3,600	Dec.31	Depreciation		200
				Dec.31	Balance c/d		3,400
			3,600				3,600
IV year				IV year
Jan.01	Balance b/d		3,400	Dec.31	Depreciation		200
				Dec.31	Balance c/d		3,200
			3,400				3,400

Note: Depreciation 4,000×5/100= ` 200 p.a.

Furniture Account (Diminishing Balance Method)
Dr.								Cr.
Date	Particulars	J.F.	( `)	Date	Particulars	J.F.	( `)
I year				I year
Jan.01	Bank		4,000	Dec.31	Depreciation		200
				Dec.31	Balance c/d		3,800
			4,000				4,000
II year				II year
Jan.01	Balance b/d		3,800	Dec.31	Depreciation		190
				Dec.31	Balance c/d		3,610
			3,800				3,800
III year				III year
Jan.01	Balance b/d		3,610	Dec.31	Depreciation		181
				Dec.31	Balance c/d		3,429
			3,610				3,610
IV year				IV year
Jan.01	Balance b/d		3,429	Dec.31	Depreciation		171
				Dec.31	Balance c/d		3,258
			3,429				3,429

Note: Depreciation is calculated on opening balance every year By using below formula

Annual Depreciation = Opening Balance ×5/100

Question 18:

Babu purchased on 1st April, 2020, a machine for ` 6,000. On 1st October, 2020, he also purchased another machine for ` 5,000. On 1st October, 2021, he sold the machine purchased on 1st April, 2020 for ` 4,000.
It was decided that Depreciation @ 10% p.a. was to be written off every year under Diminishing Balance Method.
Assuming the accounts were closed on 31st March every year, show the Machinery Account for the years ended 31st March, 2021 and 2022.

Answer:

Books of Babu Machinery Account
Dr.										Cr.
Date	Particulars		J.F.	( `)	Date	Particulars		J.F.	( `)
2020					2021
Apr. 01	Bank (I)			6,000	Mar. 31	Depreciation
Oct. 01	Bank (II)			5,000		I	600
						II (for 6 months)	250		850
					Mar. 31	Balance c/d
						I	5,400
						II	4,750		10,150
				11,000					11,000
2021					2021
Apr. 01	Balance b/d				Oct. 01	Depreciation (I) (for 6 months)			270
	I	5,400			Oct. 01	Bank (I)			4,000
	II	4,750		10,150	Oct. 01	Profit and Loss (Loss)			1,130
					2022
					Mar. 31	Depreciation (II)			475
					Mar. 31	Balance c/d (II)			4,275
				10,150					10,150

Working Note

(1) Calculation of profit or loss on sale of machine:

Particulars	( `)
Book Value of Machinery Apr. 01, 2021	5,400
Less: Depreciation (for 6 Months)	(270)
Book Value of Machinery on Oct. 01 2021	5,130
Less: Sale	(4,000)
Loss on Sale	1,130

Question 19:

X bought a machine for ` 25,000 on which he spent ` 5,000 for carriage and freight. ` 1,000 for brokerage of the middleman, ` 3,500 for installation and ` 500 for an iron pad. The machine is depreciated @ 10% p.a. on Written Down Value basis. After three years, the machine was sold to Y for ` 30,500 and ` 500 was paid as commission to the broker through whom the sale was effected. Find out the profit and loss on sale of machine.

Answer:

Books of X Machinery Account
Dr.								Cr.
Date	Particulars	J.F.	( `)	Date	Particulars	J.F.	( `)
I year				I year
Jan.01	Bank (25,000 + 5,000 + 1,000 + 3,500 + 500)		35,000	Dec.31	Depreciation		3,500
				Dec.31	Balance c/d		31,500
			35,000				35,000
II year				II year
Jan.01	Balance b/d		31,500	Dec.31	Depreciation		3,150
				Dec.31	Balance c/d		28,350
			31,500				31,500
III year				III year
Jan.01	Balance b/d		28,350	Dec.31	Depreciation		2,835
				Dec.31	Balance c/d		25,515
			28,350				28,350
IV year				IV year
Jan.01	Balance b/d		25,515	Jan.01	Bank (30,500 – 500 brokerage)		30,000
Dec.31	Profit and Loss (Profit)		4,485
			30,000				30,000

Question 20:

A company purchased a machinery for ` 50,000 on 1st October, 2019. Another machinery costing ` 10,000 was purchased on 1st December, 2020. On 31st March, 2022, the machinery purchased in 2019 was sold at a loss of ` 5,000. The company charges depreciation @ 15% p.a. on Diminishing Balance Method. Accounts are closed on 31st March every year. Prepare the Machinery Account for 3 years.

Answer:

Machinery Account
Dr.												Cr.
Date	Particulars		J.F.	( `)	Date	Particulars				J.F.	( `)
2019					2020
Oct.01	Bank (I)			50,000	Mar.31	Depreciation (for 6 Months)					3,750
					Mar.31	Balance c/d					46,250
				50,000							50,000
2020					2021
Apr.01	Balance b/d (I)			46,250	Mar.31	Depreciation
Dec.01	Bank (II)			10,000		I		6,938
						II		500			7,438
					Mar.31	Balance c/d
						I	39,312
						II	9,500				48,812
				56,250							56,250
2021					2022
Apr.01	Balance b/d				Mar.31	Depreciation
	I	39,312				I			5,897
	II	9,500		48,812		II			1,425		7,322
					Mar.31	Bank (I)					28,415
					Mar.31	Profit and Loss (Loss)					5,000
					Mar.31	Balance c/d (II)					8,075
				48,812							48,812

Working Note

(1) Calculation of profit or loss on sale of machine:

Particulars	( `)
Book Value of Machine I on Apr. 01, 2021	39,312
Less: Depreciation (39,312 × 15%)	5,897
Book Value of Machine I on Mar. 31, 2022	33,415
Less: Sale Value	(28,415)
Loss on Sale of Machine I	5,000