11.

8 Financial Accounting
is 1st July 20OXI
Case (b) lf
date of purchase
for 9 months =Rs 6,00.000 100 9
Amount of Depreciation
00 12 Rs45
purchase is Ist October 20X1
Case (c) lf date of
6
Amount of Depreciation for 6 months =Rs
6,00.000xoxRs 30.00
is Ist January 20X2
Case (d) date of purchase

AQunt of Depreciation for 3 montns =

kS 0,00,000 X ,3
100 = Rs 15.000
Illustration 4 Calculation of Profit/Loss on Sale of Asset]
X LId. purchased a second-hand machine for Rs 5,00,000 and spent Rs 1,00,000 oni

Depreciation is to be provided
is sold for Rs 4,50,000. Accounting
@ 10%
p.a. according to
Straight Line Method. This srepaiiners.
year is financial year. Calculate the profit or lnee
of machine in each of the following alternative cases:

Case (a) If date of purchase is 1.4.20XI and date of sale is 31.3.20X4

Case (6) If date of purchase is 1.4.20X1 and date of sale is 30.9.20x3
Case (c) If date of purchase is 1.7.20X1 and date of sale is 31.3.20X4
Case (d) If date of purchase is 1.7.20X1 and date of sale is 30.9.20x3
Solution
Statement Showing the Calculation of
Profit/Loss on Sale

Particulars Case (a) Case (b) Case (C) Case (d)

A. Total Cost of Asset
Rs 5,00,000+ Rs 1,00,000] 6,00,000 6,00,000 6,00,000 6,00,000
B. Less: Depreciation from 1,80,000 1,50,000 1,65,000 1,35,000
date of purchase to date
6,00,000x 10 10
6,00,000 X100 10 10
of sale
100 6,00,000x 100 6,00,000 100
30
12
C. Book Value as on date
of sale [A- B] 4,20,000 4,50,000 4,35,000 4,65,000
D. Less: Sale Proceeds
4,50.000 4,50,000 4,50,000 4,50,000
G. Loss on Sale
(Profit on Sale)
(30,000) (15,000) 15,000

Hustration 5 Journal Entries under SLM]

On Ist April 20X1, Tulsian Ltd.
purchased a second-hand machine for Rs 80,000 and
Rs 20,000 on its cartage,
repairs and installation. The residual value at the end of its spen
useful life of 4 years is estimated at Rs
40,000.
expec
On 30th September 20X3, this machine is
for Rs 50,000. Depreciation is to be so
provided according to Straight Line Method.
Required Prepare Journal, Machinery Account and Depreciation Account for the first three
yearsassuming that the accounts are closed on 31st March each
year.
 ion, Provisions and Resorves 11.
moreciaton

siuton
Journal of Tulsian Ltd.
particulars L.F D. (Rs) Cr. (Rs)
X1 Machinery A/c 80,000
01.04XT Dr. 80,000
To Bank Ac
(Being the machinery purchased)
01.04.A7/Machinery Alc 20,000
To Bank A/c
Dr 20,000

(Being the cartage and installation charges paid)

31.02 Depreciation Ac Dr. 15,000
To Machinery A/c 15,000
(Being the depreciation provided)

Profit and Loss Alc Dr. 15,000

31.03 To Depreciation Ac 15,000
(Being the transfer of Depreciation Ac)
31.03.X3 Depreciation Alc Dr. 15,000
15,000
To Machinery A/c
(Being the depreciation provided)
Prorit and Loss A/c Dr 15,000
31.03.X3 15,000
To Depreciation A/c
(Being the transterof Depreciation Ac)
Depreciation AWc Dr 7,500
3009.X3 To Machinery A/c
7,500
(Being the depreciation provided)
50,000
30.09.X3 Bank Alc Dr. 50,000
To Machinery Ac
(Being the Machinery sold)
Dr. 12,500
Profit and Loss A/c 12,500
3009.X3 To Machinery A/c
the transfer of loss on sale of Machinery)
(Being
and Loss A/c Dr. 7,500
31.03.X4 Profit 7,500
To Depreciation A/c
(Being the transfer of depreciation A/c)
Cr.
Machinery Account
Dr.
Date Particulars RS
Particulars Rs
Date
01.04.X1 To Bank A/c 80,000 31.03.x2 By Depreciation Ac
15,000
To Bank A/c (Expenses) 20,000 Rs 1,00,000 xx
By Balance c/d 85,000
1,00,000
1,00,000

01.04.X2 To Balance b/d 85,000 31.03.X3 By Depreciation Ac 15,000

Rs1,00,000x nx
100

By Balance cld 70,000

85,000
85,000
01.04.X3 To Balance b/d 70,000 30.09.X3 By Depreciation A/c

Rs 15
1,00,000 x100 12
7,500

By Bank Ac (Sale) 50,000

(loss) 12,500
By Profit and Loss A/c
70,000
70,000
11.10 Financiat Accountino
Depreciation Account
Rs Date
Particulars
15,000 31.03.X2
Particulars
Date Alc
By Profit and Loss
To
Machinery
15000 31.03.X3 By Nc
Profit and Loss
31.03.X2

31.03.X3
To Machinery
Alc
A/c
7.500 31.03.X4 By Profit and
Al¢
Loss Ac
5.09
To Machinery
30.09.X3

Working Notes

Calculation of the Rate of Depreciation

(i)
Calculation of Total Cost of Asset
Step 1 Rs 20.000 = Rs 1,00,000
= Rs 80,000 +

of Amount of Depreciation per

year
Calculation
Step 2
Total Cost of Asset-Estimated
Residual Value
Expected Useful Life

Rs 100.000 -Rs 40,00- Rs 15,000

4
under SLM
Step 3
Calculation of Rate of Depreciation
Amount of Depreciation
x 1000
Total Cost of Asset

Rs15,000 X
100 =15%
Rs 1,00.000

ii) Calculation of Profit/Loss on Sale of Machine

Rs
A. Total Cost of Asset [Rs 80,000 + Rs 20,000] 1,00,000
B. Less: Depreciation from date of purchase to date of sale 37,500

Rs 1,00,000 x 30
100 12
. Book Value as on date of sale [A- B] 62,500
D. Less: Sale Proceeds 50,000
E. Loss on sale of asset [C-D] 12,500

Illustration 6 [Machinery Account when Asset is Purchased during the year]

On lst January 20X2, Tulsian Ltd. purchased a second-hand machine for Rs 80,000 and spent
Rs 20,000 on its cartage, repairs and installation. The residual value at the end of its expected
useful life of 4 years is estimated at Rs 40,000. On 3Oth September 20X3, this machine is sold
for Rs 50.000. Depreciation into be provided according to Straight Line Method.
Required Prepare Machinery Account for the first three years assuming that the accounts
are closed on 31st March each year.
Solution

Dr. Machinery Account Cr.

Date Particulars Rs Rs
Date Particulars
01.04.X1 To Bank A/c
80,000 31.03.X2 By Depreciation Alc
To Bank A/c (Expenses) 20,000 15 3,750
Rs 1,00,000 100 3
12
By Balance c/d 96,250
1,00,000 1,00,000
 11.11
Deprec.
reciation, Pro visions and Reserves

Particulars Rs P'atictun
Date Date
To Balance b/d 96,250 31.03 X3 By Dopreciation NG
15,000
04.X2

1512
Rs 1,00.000 100 12
81.250
By Balance c/d
96,250
96,250
To Balance b/d Nc
01
04.X3 81,250 30.09 x3 By Depreciation 7,500
15 6
Rs 1,00,000 100 12
50,000
By Bank Ac (Sale)
By Profit and Loss Alc 23,750
(loss) 81,250
81,250

Working Note Calculation of Profi/Loss on Sale of Machine

Rs
1,00,000
Total Cost of Asset [Rs 80,000 Rs 20,000]
A 26,250
Less: Depreciation from date of purchase to date of sale
6.

Rs1,00,000x 100 12
73,750
Book Value as on date of sale [A- B]
50,000
Less: Sale Proceeds
. 23,750
Loss on sale of asset [C- D]
E
machine for Rs 52,000
lustration 7 January 20X1, X Ltd. purchased a second-hand
On T
Rs S00 as
Rs 2.000 as shipping and forwarding charges, Rs 5,000 as import duty,
and spent Rs 400 as brokerage
1.300 as repair charges, Rs 500 as installation charges,
camiage inwards, Rs machine will have
100 for an iron pad. It was estimated that the
of the middleman and Rs On 30 September
Scrap value of Rs 2,O00 at the end of its useful life which is 20 years.
this machine was sold for
20X1 repairs and renewals amounted to Rs 2,000. On 1 July 20X3,
Rs 30.600.
Prepare the Machinery Account for the first three calendar years.
Required
Solution
Total Cost of Machinery = Purchase price + Expenses to be capitalized
= Rs 52,000 + Rs 2,000 + Rs 5,000+ Rs 500

+Rs 1,500 + Rs 500 + Rs 400+ Rs 100

= Rs 62,000

Total Cost of Machine - Scrap Value

Amount of Depreciation p.a.
Expected Useful in Life

Rs 62,000- Rs 2,000
= Rs 3,00
20

Amount of Depreciation 3,000

Rate of Depreciation X 100=Rs * 100=4.84%

Total Cost of Machine Rs 62,000

11.12
Financial Accoute
Machinery Account
Dr
Particulars
Rs Date
Date 52,000 31.12.X1 Particulars
To Bank Ac
(Cost) By Depreciation Ale
01.01.X1
(Expenses) 10,000 By Balance cld Rs
To Bank Alc
62,000 306
59 06
To Balance b/d 59,000 31.12.X2 By Depreciation
01.01.X2 Alc
By Balance c/d
59,000 3,.006
56,000 01.07.X3 By Depreciation A/c
56,000
01.01.X3 To Balance b/d 59 06
By Bank ANc
By P&L Ac (Loss)
1500
30 600
56,000 23 900
56,000
Working Notes
Book Value as on date of sale = Rs 56,000- Rs 1,500 = Rs 54,500.
)
() Loss on sale = Book Value as on date of sale - Sale proceeds

= Rs 54,500-Rs 30,600= Rs 23,900

(iüi) The amount spent on repairs and renewals on 30.9.20A1l 1s of revenue 'hature and n
of capital nature and hence, not debited to Machinery Account. not

llustration8 From the following information of Bharat Tulsian Ltd., prepare

for the three years ending 31st March 20X4.
Machinery Account
Method of Depreciation: Straight Line Rate of Depreciation 20% p.a.

Date Transactions
01.04.20X1 Purchased a second hand Machinery I for Rs 80,000
01.04.20X1 Spent Rs 20,000 on its repairs to make it serviceable
01.10.20X1 Purchased a New Machinery II for Rs 2,00,00o
01.04.20X2 Spent Rs 2,000 on repairs of New Machinery I
30.09.20X3 Sold a Machinery I for Rs 45,000
30.09.20X3 Purchased a New Machinery ll for Rs 3,00,000
=

Solution

Dr.
Machinery Account
Date Particulars Rs Date Particulars Rs
01.04.X1 To Bank A/c
(Machine 80,000 31.03.x2 By Depreciation Ac:
To Bank A/c
(Expenses) 20,000 Machinery 20,000
01.10.X1 To Bank Alc
(Machine ll) 2,00,000 Machinery l 20,000
By Balance c/d:
Machine 80,000
MachineII 1,80,000
3,00,000 3,00,000
01.04.X2 To Balance b/d:
31.03.X3 By Depreciation A/c:
Machine 20,000
80,000 Machine I
Machine
1,80,000 Machine I 40,000
By Balance c/d:
60,000
Machine 1
Machine 1,40,000
2,60,000 2,60,000
 ation,
Depreciation Provisions and Reserves 11.13

Date
Particulars Rs
Dato Particulars
01.04.X3 To Balance b/d
Machine 30.09.X3 By Dopreciation
10,000
Machine I 60,000 Machine
1,40,000 20
Rs 1.00.000 0012

30.09. X3vaTo Bank A/c (Machine 45,000

) 3,00,000 By Bank Alc (sale)
By Profit and Loss Vc
5,000
(Loss)
31.03.X4 By Depreciation Ac:
40,000
Machine
30,000
Machine
By Balance c/d:
1,00,000
Machine
2,70,000
MachineI
5,00,000
5,00,000
Working Notes

Calculation of Profit or Loss on Sale of Asset

Rs
Total Cost of Asset [Rs 80,000 + Rs 20,000] 1,00,000

Less: Depreciation from date of purchase to date of sale 50,000

B.
Rs
Rs 1,00,000x20 30
1,00,000 00 12
Book Value as on date of sale [A- B 50,000
C. 45,000
Less: Sale Proceeds
D.
Loss on sale [C- D] 5,000
E.
01.04.20X2 1s of
() The amount spent on repairs and reserves of machinery Rs 2,000 on
revenue nature and not of capital nature and hence not debited to Machinery Account.

llustration 9 Transport comnpany purchases 5 trucks at Rs 2,00,000 each on 1 April 20X1.

A

The-company writes off depreciation 20% per annum on original cost and observes calendar
year as its accounting year.
On 1 October 20X3 one of the trucks is involved in an accident and is completely destroyed.
Insurance company pays Rs 90,000 in full settlement of the claim. On the same day the company
purchases a used truck for Rs 1,00,000 and spends Rs 20,000 on its overhauling
Required Prepare Truck Account for the three years ending on 31st December 20X3.
Solution
Dr. Truck Account Cr.
Date Particulars Rs Date Particularss Rs
01.04.X1 To Bank Ac 10,00,000 31.12.X1 By Depreciation Ac

1,00,000x 20 1,50,000
Rs
100 12
By Balance c/d 8,50,000
1,00,000 1,00,000
01.01.X2 To Balance b/d 8,50,000 31.12.x2 By Depreciation A/c 2,00,000

Rs 1,00,000 x 10012
By Balance c/d 6,50,000

8,50,000 8,50,000
 Financial Accourin,
Date Particulars
11.14 As
P a r t i c u l a r s

6.50,000
01.10.X3 By Depreciation Alc
20 9
Date b/d 1.00,000 R$2,00,000 100
To
B a l a n c e

12
0 1 . 0 1 . X 3
Alc 20,000
Bank
To (Exp.) By Bank Ac (Claim)
0 1 . 1 0 . X 3 Ac
Bank
To
By Profit and Loss Alc 9060
31.12.X3 By Depreciation A/c: 10,00
on old trucks
180,00
Rs8,00,000x 20 12
100 12
on new truck 6000
Rs 1,20,000»
20
100 12
Balance c/d:
31.12.X3 By
Old trucks
3,60,000
New truck 1,14,000
7,70,000
7,70,000

-+125
Working Notes accident
Truck on date of
Book Value
of one

i) 20 30
=Rs2.00,000-
Rs 2,00.00 100 12 1,6,DeV
=Rs 1,00,000

Rs 1,00,000 Rs 90,000 =Rs 10,000.

of accident
=

(i) Loss on Date

Machineries were purchased by X for R_ 50,000. On
On 1 January 20X1, 20X3, further additions
Alustration19
made to the extent of Rs 10,000. On 1 April value of
1 July 20X2.
additions were
machinery, original
extent of Rs 6,400. On
30th June 20X4, one is charged at
made to the
were
sold for Rs 6,000. Depreciation
which was Rs 8,000 on 1 January 20X1, was

cost.
10% p.a. on original to 20X4 in the
books of
Account for the years from 20XI
Required Show the Machinery
X. X closes his books on 31st December.

Solution
Cr.
Machinery Account
Dr.
HS
Particulars Rs Date Particulars
Date
Alc
01.01.X1 To Bank A/c (Machine 1) 50,000 31.12.X1 By Depreciation
5,000
Rs50,000x100 12
45,000
By Balance c/d
50,000
50,000
01.01.X2 To Balance b/d: 31.12.X2 By Depreciation A/c:
5,000
Machine 45,000 Machine
500
01.07.X2 To Bank Ac Machine 1
m h

(Machine I 10,000 By Balance c/d:

40,000
MachineI
9,500
Machine I
55,000
55,000
 Provisions and Reserves 11.15
Depreciation,

Particulars Rs Particulars
Date
Date
To Balance b/d:
01.01.X3 31.12.X3 By Dopreciation Nc 5,000
Machine
40,000 Machine
1,000
Machine
9,500 Machine A80
To Bank A/c
04.X3 Machine II
t
MachineI By Balance c/d
6,400 35,000
Machine
8,500
Machine
5,920
Machine
55,900
55,900 6,000
To Balance b/d: 30.06.X4By Bank Alc (Sale)
o1.01.X4
Machine I By Depreciation A/c
Machine I
35,000 (On Machine sold)
8,500
Machine Il 5,920 400
To P&L A/c Rs 8,000x 100 12
30.06.
(Profit on Sale)
800
31.12.X4 By Depreciation AC: 4,200 g
MachineJ 3
Machine II
Machine II 649
31.12.X4By Balance c/d: 25,200K
Machine I
7,500
Machine I
Machine I 5,280
50,220
50,220
01.01 Balance b/d 37,980
Working Notes Calculation of Profi/Loss on Sale of Machinery
Rs
8,000
Cost as on 1.1.20X1
Less: Depreciation for 35 years from date of purchase to date of sale 2,800
B. 5,200
Book Value as on date of sale A-B
Less: Sale Proceeds
6,000
p. 800
Profit on Sale [D- CC]
E
llustration 11 X Ltd. purchased on 1 January nd plant for Rs 60,000 and
20X1 a second
1 20X1 additional
immediately spent Rs 40,000 in putting the same in working condition. On July
on 1 January
machinery costing Rs 40,000 was purchased. On 1 January 20X3, the plant purchased
20X1 became obsolete and was sold for Rs 50,000. On 1 July 20X3 new machinery was purchased
al a cost of Rs 1,20,000. The firm provided depreciation on straight line method at 10% per
annum on the original cost of the asset.
(6y
Show Machinery Account for the calendar years 20X1 to 20X4.
Required
Solution
Dr Plant and Machinery Account

Date Particulars Rs Date Particulars Rs

01.01.X1 To Bank A/c (Machine) 60,000 31.12.X1 By Depreciation A/c
To Bank Ac (Overhaul) 40,000 Machine 10,000
U1.07.X1 To Bank 40,000 Machine I 12,000
A/c (Machine 2.000
By Balance c/d:
Machine I 90,000
Machine l 38.000 1,28,000
1,40,000 1,40,000
11.16

Particulars
Rs Date
nancial ACtountin
Date
b/d: 31.12.X2 By Particulars
01.01.X2 To Balance
Machine
90,000 Depreciation
Machine Alc
38.000 1,28,000
Machine Machine 10.000
By Balance cld 4.000
Machine
Machine 80,00
1,28,000 4,000
01.01.X3 To Balance b/d: 01.01.X3 By Bank AWc: 114066
Machine 80,000 (Sale Proceeds)
Machine II 34,000 1,14,000 By P&L AVc
01.07.X3 To Bank Ac: (Loss on Sale) 50 06
(Machine ) 1,20,000 (Rs 80,000- Rs
31.12.X3 By Depreciation A/c50,000
Machine
Machine l 4,000
By Balance cld: 6.000
10.0
Machine I
Machine II
30,000
1.14.000
2,34,000 1,44 006
01.01.X4 To Balance b/d: 31.12.X4 By Depreciation A/c:
2,34 000
Machine Il 30,000 Machine II 4,000
Machine l 114.000 1,44,000 Machine llI
12.000 16,000
By Balance c/d:
Machine lI 26,000
Machine l 102.000 1,28,000
1,44,000
1,44,000
Illustration 12 X Ltd. purchased a second-hand machinery on I
January 20X1 for Rs 37.000
and immediately spent Rs 2,000 on its repairs and Rs 1,000 on its erection. On 1
July 20X2
it purchased another machine for Rs 10,000 and on 1 July 20X3 sold off the first
machine
purchased in 20X1 for Rs 28,000; on the same date in purchased a machinery for Rs 25,000.
On Ist July 20X4 the secônd machinery purchased for Rs 10,000 was also sold off
for Rs 2,000
Depreciation was provided on the Machinery at a rate of 10% p.a. on the original cost annually
on 31st December.

Required Give the Machinery Account for four calendar years commencing from I January
20X1. Calculations are to be made to the nearest rupee.

Dr.
Machinery Account Cr.

Date Particulars Rs Date Particulars

01.01.X1 To Bank Alc (Machine I) 37,000 31.12.X1 By Depreciation Ac 4,000
To Bank AWc
By Balance c/d 36,000
(erection and repairs) 3,000
40,000 40,000
01.01.X2 To Balance b/d:
36,000 31.12.X2 By Depreciation A/c:
01.07.X2 To Bank Alc:
10,000 Machine 4,000
(MachineI) Machine II 500 4,500
By Balance c/d:
Machine I 32,000
Machine 9.500 41,500
46,000 =
46,000
Depreareciation, Provisions and Reserves 11.17

Date Particulars
01.01 To Balance b/d: Rs Date P'articulars
By Deprociation Alc:
Machine
Machine I 32,000 10
2,000
9.500 A1,500 FRs 40,000 100 12|
To Bank A/c:
01.07. 28,000
Machine I 25,000 By Bank Nc:
2,000
By Profit and Loss Alc
(Loss) [(Rs 32,000
Rs 2,000) Rs 28,000]
-

31.12.X3By Depreciation Ac:

Machine I 1,000
2,250
Machine I 1.250
By Balance cld:
Machine
8,500
32,250
Machine
23,750
66,500
66,500
To Balance b/d:
a1.01.X4 01.07.X4 By Depreciation Alc
Machine I 8,500 10
Machine II Rs10,000x100 12 500
23.750 32,250
01.07.X4 By Bank Ac
2,000
Loss Ac
31.12.X4By Profit and
(Loss) [(Rs 8,500
Rs 500 Rs 500-
6,000
Rs 2,000)]1
By Depreciation A/c 2,500
By Balance c/d 21,250
32,250
32,250

llustration 13 A LId. has imported a machine on 1 July 20XI for Rs 1,28,000, paid customns

Rs 64,000 and incurred erection charges Rs 48,000. Another local machinery

duty and freight
cOstingRs 80,000 was purchased on 1 January 20X2. On1 July 20X3 a portion of the imported

machinery (value one-third) got of order and was sold for Rs 27,840. Another machinery
out
was purchased to replace the same for Rs 40,000. Depreciation to be calculated at 20% p.a.

original cost basis.

on
Calrte
Required Show the Machinery Account for 20X1, 20X2 and 20X3.
Solution
Dr. Machinery Account Cr.

Date Particulars Rs Date Particulars Rs

01.07.X1 To Bank A/c (Machine 1) 1,28,000 31.12.X1 By Depreciation ANc 24,000
To Bank A/c (Expenses) 64,000 20
To Bank Ac (Expenses) 48,000
Rs 2,40,000x 100 2
By Balance c/d 2,16,000
2,40,000 2,40,000
01.01.X2 To Balance b/d: 31.12.X2 By Depreciation A/c
Machine 2,16,000 Machine I 48,000
To Bank A/c Machine I 16,000
Machine II 80,000 By Balance c/d:
Machine I 1,68,000
Machine Il 64,000
2,96,000 2,96,000
11.18
Financial Accoy
Particulars
Rs Date
Date
b/d:
01.07.X3 By Bank ANc
Particulars
Balance
To
01.01.X3 1,68,000 By Depreciation Alc
Machine
64,000 1
Machine l 3 2,40,000 x 20 6

(on machinery sold)

100 12
01.07.X3 To Bank Ac
Machine I 40,000 01.07.X3 By P&L A/c
(loss on sale) 20 166
31.12.X3By Depreciation Alc:
Machine
Machine I 32 060
Machine l 16 0O09
By Balance c/d: 4 000
Machine
Machine I 80 000
Machine III 48,000
2,72,000 36,000
2,72.000
Working Notes Calculation of ProfiLoss on Sale of Machinery

Rs
x 1/3)
A Original Cost of machinery as on 1.7.X1 (Rs 2,40,000 80,000
Less: Depreciation for 2 years from date of purchase to date of sale
B. 32,000
C. Book Value as on date of sale [A- B] 48,000
D. Less: Sale Proceeds 27,840
E. Loss on sale of machinery [C- D] 20,160

Ilustration 14 On I July 20X1 Vijay Ltd. purchased second-hand machinery for Rs 20.000
and spent Rs 3,000 on reconditioning and installing it. On 1 January 20X2 the firm purchased
new machinery worth Rs 12,000. On 30 June 20X3 the machinery purchased on 1 January 20x2
was sold for Rs 8,000. On 1 July 20X3 fresh machinery was purchased on instalment basis,
payment for this machinery was to be made as follows

July 20x3 Rs 5,000

30 June 20X4 Rs 6,000
30 June 20x5 Rs 5,500
Payments in 20X4 and 20X5 include interest Rs 1,000 and Rs 500 respectively.
The Company writes off depreciation10% p.a. on original cost. The accounts are closeu
every year on 31st March.
Required Show the Machinery Account for three years ending on 31 March 20A+.
Solution

Dr. Cr.
Machinery Account
Date Particulars Rs Date Particulars Rs
01.07.X1To Bank AAc (Machine 1) 20,000 3. 3.X2 By Depreciation Alc
To Bank Alc 1,725
(Expenses) 3,000 Machine
300
01.01.X2 To Bank /c (Machine Il) 12,000 Machine II
By Balance t/d:
Machine
,275
11,700
Machine
35,000
35,000
Depreciation, Provisions and Reserves 11.19

Date
Particulars Rs
at04.X2To Balance b/d: Dato Particulars

Machine 3103.X3 By Dopreciation AC:

Machine I 21,275 Machine
2.,300
11,700 Machine
200
31.03.X4 By Balance cld
Machine
18,975
Machine
10,500
32,975
0104.X3 To Balance b/d: 32,975
30.06.X3 By Depreciation /c
300
Machine 1 8,000
MachineI 18,975 By Bank Alc (Machine l)
10,500 By P&L A/c (Loss)
2.200
0107.X3 10 Hire vendor's ANc
(Cash price) 31.03.X4 By Depreciation Nc
2,300
Machine I 15,000 Machine
Machine I 1,125
By Balance c/d:
Machine
16,675
Machine II 13,875
44,475 44,475
Working Notes
Book value of Machine l as on date of sale = Rs 10,500 Rs 500
Loss on Sale Rs 10,200
=
- Rs 8,000 =
Rs 2,200
(ii) Cash price or Machine III = Rs 5,000 + Rs 6.000 + Rs 5,500 (Rs 1,000 + Rs S00)

= Rs 15,000

(iv) Depreciation on Machine l = Rs 15,000 x x = Rs 1,125.

WRITTEN DOWN VALUE METHOD' OF DEPRECIATION (WDV)

Meaning Under the Written Down Value method, depreciation according to a fixed percentage
calculated upon the original cost (in the first year) and written down value, (in subsequent years)
of an asset. is written off during each accounting period over the expected usetl life of the
asset. Under this method, the rate of depreciation remains constant year after year whereas the
amount of depreciation goes on decreasing.
How to Calculate Rate of Depreciation under wDV Method The rate of depreciation is
calculated as follows:

100

where, R=Rate of Depreciation (in %), n = Useful life ofthe asset (in years)
S= Scrap value at the end of useful life of the asset
C= Cost of the asset

Merits The main merits of this method are as follows:

The total charge (i.e., depreciation plus repairs renewals) remains uniform year after year
SInce in earlier years the amount of depreciation is more and the amount of repairs and
renewals is less, whereas in later years the amount of depreciation is less and the amount
oT repairs and renewals is more.

his method is logical in the sense that as the asset grows older, the amount of depreciation
also goes on
decreasing.
 11.20 Fi AcCo

demerits of this method are as followe

Demerits
The main
of depreciation,
calculate the rate
It is difficult to
the inlerest on canital
lt does not take into consideration invested in the
replacement of the asset an
the asset
3 lt does not provide for the expiry of its
It takes a very long time to write an asset down to its break-up value useful Aie
4
rate is used.
unless a
very hih
This method is suitable 1or thosce Assets in relation to which r
Suitability as the asset grows older (b) the
the amount
and renewals goes on increasing
repairs and machineries, buildina
suitabie for
method is plant etc.
are/more. This
Dlustration 15 Journal Entries under Written Down Value Method
On Ist April 20X1. Tulsian Ltd. purchased machine for Rs
a second-hand R0
and installation. On 30th September 20x and spent
ade
Rs 20.000 on its cartage. repairs
sold for Rs 50.000. Depreciation
is to be provided @20% p.a. according
to Writ achine ts
Written Dow
Value Metho

Prepare Journal, Machinery Account

and Depreciation Account for tho c
Required first three
accounts are closed on 3Ist March each year.
years assuming that the
Solution
Journal of Tulsian Ltd.

L.F. Dr. (Rs)

Date particulars C. (Rs)
01.04.X1 Machinery Alc Dr. 80,000
To Bank Alc 80,000
Being the machinery purchased)
01.04.X1 Machinery Ac Dr. 20,000
To Bank A/c 20,000
Being the cartage and installation charges paid)
31.03.X2 Depreciation A/c Dr. 20,000
To Machinery Alc 20,000
Being the depreciation provided)
31.03.X2 Profit and Loss A/c Dr 20,000
To Depreciation Alc 20,000
(Being the transfer of Depreciation ANc)
31.03.X3 Depreciation Alc Dr. 16,000
To Machinery Alc 16,000
(Being the depreciation provided)
31.03.X3 Profit and Loss Alc Dr. 16,000
To Depreciation A/c 16,000
(Being the transfer of Depreciation Ac)
30.09.X3 Depreciation Alc Dr 6,400
To Machinery Ac 6,400
(Being the depreciation provided)
30.09.X3 Bank Alc Dr. 50,000
To Machinery Alc 50,000
(Being the Machinery sold)
30.09.X3 Profit and Loss A/c Dr. 7,600
To Machinery Ac 7,600
(Being the transter of loss on sale of Machinery)
31.03.X4 Profit and Loss A/c 6,400
Dr 6.400
To Depreciation Alc
(Being the transfer of Depreciation A/c)
 oreciation, Provisions and Reserves 11.21

Dr. Cr
Machinery Account
Date Particulars Rs Rs
Date Particulars
01.04.X1 To Bank Alc
To Bank Alc 80,000 31.03.X2 By Depreciation c
(Expenses) 20,000 2012 20,000
Rs 1,00,000 100 12
80,000
By Balance c/d
1,00,000
1,00,000
1.04.X2To Balance b/d 16,000
80,000 31.03.X3 By Depreciation Ac

Rs80,000 100 12
64,000
By Balance c/d
80,000
80,000
01.04.X3 To Balance b/d 64,000 30.09.x3 By Depreciation Ac

Rs 64,000x 20,6
100 12 6,400

50,000
By Bank A/c (Sale)
By Profit and Loss Alc
7,600
(loss) 64,000
64,000
Cr.
Depreciation Account
Dr. Rs
Date Particulars
Date Particulars Rs
Profit and Loss Ac
20,000
31.03.X2 To Machinery A/c 20,000 31.03.X2 By 16,000
Profit and Loss A/c
31.03.X3 To Machinery A/c 16,000 31.03.X3 By 6,400
Profit and Loss Alc
30.09.X3 To Machinery A/c 6,400 31.03.X4 By
Working Notes Calculation of Profi/Loss on Sale of Machine
As
,00,000
Total Cost of Asset [Rs 80,000 Rs 20,000] 20,000
A.
B. Less: Depreciation for 20X1-20x2 [20% of Rs 1,00,000] 80,000
Book Value as on 1.4.20X2 [A- B1 16,000
C.
of Rs 80,000]
D. Less: Depreciation for 20X2-20X3 [20% 64,000
Book Value as on 1.4.20X3 6,400
E [20% of Rs 64,000 for 1/2 year]
Less: Depreciation upto date of sale for 6 months
F. 57,600
G.
Book Value as on date of sale [E- F]| 50,000
H. Less: Sale Proceeds
7,600
Loss on Sale [G- H1
a second-hand
machine for Rs 58,000
llustration 16 On 1 January 20X1, X Ltd., purchased
was sold for Rs 28,600.
and spent Rs 2,000 on its erection.
On 1 July 20X3, this machine
Written Down
of the first 3 years according to the
Required the Machinery Account
Prepare
Value taking the rate of depreciation at 10% p.a.
Solution
Cr.
Machinery Account
Dr.
As
Rs Date Particulars
Date Particulars 6,000
01.01.X1 To Bank AVc 58,000 31.12.X1 By Depreciation A/c
To Bank Alc 10 12
60,000 100 12]
2,000
(Erection charges)
 Financial Accountin
11.22 unting Dep
Rs Date Particulars
Particulars
Date By Balance c/d Wo
60,000

b/d
54,000 31.12.X2 By Depreciation Alc 60 060
01.01.X2
To Balance
54,000x 12 5400
100 12
By Balance c/d
54,000
48,600
48,600 01.07.X3 By Depreciation A/c 54,000
01.01.X3 To Balance
b/d
48,600 x 1 0 6
2,430
100 12
By Bank AWc
By P&L A/c (Loss)
28,600
17,570
48,600 48,600

Working Notes
10 6
i) Book value as on date of sale = Rs 48,600 -

48.600 100 12
= Rs 46.170

Sale proceeds = Rs 46,170 -

Rs 28,600
Los Sale = Book value -

(i) on
= Rs 17,570

IlHustration 17/[When Asset is Purchased during the year]

second-hand machine for Rs 80,000 and spent
On 1st January 20X2. Tulsian Ltd. purchased a
Rs 20.000 on its cartage, repairs and installation. On
30th September 20X3, this machine is
sold for R< 50,000. Depreciation is to be provided 20%% p.a. according to Written Down
Value Method.
three years assuming that the accounts
Required Prepare Machinery Account_for the first
are closed on 31st March each year.
Solution
Dr. Machinery Account Cr.

Date Particulars Rs
Particulars Rs Date
01.01.X2 To Bank Alc 80,000 31.03.X2 By Depreciation Alc
To Bank Alc (Expenses) 20,000
Rs x 203
1,00,000 5,000
100
95,000
By Balance c/d
1,00,000
1,00,000
01.04.X2 To Balance b/d 19,000
95,000 31.03.X3 By Depreciation A/c
20
Rs 95,000x 100 12
By Balance c/d 76,000
95,000 95,000
01.04.X3 To Balance b/d 76,000 30.09.X3 By Depreciation AVc
Rs 76,000x20

By Bank A/c (Sale)

100 2 7,600

50,000
By Profit and Loss A/c (loss) 18,400

76,000 76,000
 Deprec iation, Provisions and
Reserves
11.23
Working Notes
Calculation of
P'rofit/loss on Sale of Machine
A. Total Cost of Asset [Rs
80,000 Rs
Rs
Less: Depreciation for 20,0001 1,00,000
20X1-20x2| Rs 1,00,000 203 ,000
Book Value as on 10012
1.4.20X2 A- B]
95,000
D. Less: Depreciation for
20X2-20X3 Rs 95,000x 202
Book Value as on
1.4.20X3 |C- D] 10012 19,000

76,000
Less: Depreciation upto date of sale for
6 20
months Rs 76,000 100
G. Book Value as on
date of sale
100 12 7,600

H.
Less: Sale Proceeds [E- F1 68,400
50,000
Loss on Sale [G- H
18,400
llustration 18 rom the following information of Bharat Tulsian Ltd.. prepare Machinery
count
Acco for the three years
ending
31st March 20X4.
fethod of Depreciation: Written Down Value
Method Rate of Depreciation 20% p.a.
Date
Transactions
01.04.20X1 Purchased a second hand
Spent Rs Machinery I for Rs 80,000
01.04.20X1 20,000 on its repairs to make it serviceabie
01.10.20X1 Purchased a New Machinery Il for Rs 2,00,000
01.04.20X2 Spent Rs 2,000 on
repairs of New Machinery
30.09.20X3 Sold a
Machinery I for Rs 45,000
30.09.20X3 Purchased a New Machinery llI for Rs 3,00,000
Solution

Dr. Machinery Account Cr.

Date Particulars Rs Date Particulars Rs
01.04.X1 To Bank A/c (Machine ) 80,000 31.03.X2 By Depreciation A/c:
To Bank Alc (Expenses) 20,000 20,000
MachineryI
01.10.X1 To Bank A/c (Machine Il) 2,00,000 Machinery I 20,000
By Balance c/d:
Machine 80,000
Machine I 1,80,000
3,00,000 3,00,000
01.04.X2 To Balance b/d: 31.03.X3 By Depreciation A/c:
Machine I 80,000 Machine 1 16,000
Machine I 1,80,000 Machine II 36,000
By Balance c/d:
Machine 64,000
MachineII 1,44,000
2,60,0000 2,60,000
01.01.X3 To Balance b/d: 30.09.X3By Depreciation A/c:
Machine I 64,000 Machine 6,400
Machine 1,44,000 By Bank Alc (sale) 45,000
30.09.X3 To Bank A/c (Machine lI) 3,00,000 By Profit and Loss Alc
(Loss) 12,600
31.03.X4 By Depreciation Ac:
Machine ll 28,800
 11.24 inancial AccouRin
Rs Date
Date
Particulars Particulars
Machine I
By Balance c/d:
Machine l1
Machine I
5,08,000 210 056
Working Notes

Calculation of Profit/Loss on Sale of Machine

Rs
Rs 20,000]
80,000 +
Total Cost of Asset [Rs
20X1-20X2 [20% of Rs 1,00,000]
Less: Depreciation for 20.Co0
Book Value as on [A-B]
1.4.20x2
80.00
C.
Less: Depreciation for
20X2-20X3 (20% of Rs 80,000] 16.000
D.
as on 1.4.20X3 64 00
E. Book Value
sale for 6 months [20% of Rs 64,000 for 1/2
F. Less: Depreciation upto date of
6,400
year
Book Value [E- F] 57,600
G.
Less: Sale Proceeds
45.000
H.
12.600
Loss on Sale [G- H]

Rs 2,000 on 1.4.20X2 is ofrevenue

(ii) The amountrepairS and reserves of machinery
spent on
to Machinery Account.
nature and not of capital
nature and hence not debited
and spent
Ltd. purchased a machinery for Rs 58,000
Illustration 19 On 1st January 20X1, X
Rs 20.000 was
20XI an additional machinery costing
Rs 2,000 on/its erection. On 1st July
sold for Rs 28.600 and
machine purchased on 1.1.20XI was
purchased. On Ist July 20X3 the Rs 40,000.
machine was purchased at a cóst of
on the same date, a new
according to wntten
Show the Machinery Account for the first four calendar years
Required
down value method taking the rate of depreciation at TO% p.a.

Solution
Cr.
Machinery Account
Dr.
s
Date Particulars Rs Date Particulars
01.01.X1 To Bank A/c 31.12.X1 By Depreciation A/c: 6,000
58,000 MachineI bdjw®y
(Machine l) 1,000
Machine lI o
To Bank Ac
By Balance c/d:
(erection charges) 2,000 4 ,000
Machine
01.07.X1 To Bank Wc 19,000

Machine II 20,000 Machine l

80,000

80,000
01.01.X2 To Balance b/d: 31.12.X2 By Depreciation A/c 5,400
Machine
Machine 54,000 1,900
Machine lI 19,000 achine
By Balance c/d: 48,600
Machine 17,100

Machine
73,000

73,000
 Depreciation, Provisions and Reserves
11.2

Date
Particulars Rs Date Particulars Rs
01.01.X3 To Balance b/d
01.07.X3 By Bank Ac (sale) 28,600
Machine By Depreciation Alc:
48,600
Machine I
01.07.X3 To Bank Ac 17,100 (on Machipe sold) 2,430
Machine l 106
Rs 48,600 100
40,000 12
By P&L Ac
(Loss on sale) 17,570
31.12.X3 By Depreciation A/c:
Machine I 1,710
Machine I 2,000
By Balance c/d:
Machine I 15,390
Machine I 38,000
01.01.X4 To Balance b/d: 1,05,700 1,05,700
31.12.X4 By Depreciation Alc:
Machine I
15,390 Machine I 1,539
Machine
38,000 Machine ll 3,800
By Balance c/d:
Machine ll 13,851
Machine I
53,390 34,200
53,390
Working Notes Calculation of Profi/Loss on Sale of Machinery (purchased on 1.1.20X)
A. Original cost Rs
B. Less: Depreciation for
As
20X1 60,000
C. Book Value as on
D
1.1.20X2 (A- B) 6,000
Less: Depreciation for
20X2 54,000
Book Value as on
1.1.20X3 (C-D) 5,400
Less:
en .
Depreciation for 20X3 [(for 6 months) to 48,600
Book Value as on up date of sale]
H.
1.7.20X3 (E- F) 430
Less: Sale Proceeds
Loss on Sale (G- 46,170
H)
28,600
DISTINCTION BETWEEN STRAIGHT 17,570
.
METHOD LINE METHOD AND
WRITTEN DOWN VALUE
Straight Line Method differs from
Written Down Value
Method in the
0 Basis of Distinction
Straight Line Method
following respects:
00 Basis of Calculation Written Down Value
Depreciation is calculated
at a
Method
00 fixed
percentage on the Depreciation
original percentage on
is calculated
at a
00 Cost. fixed
2.
original
year) and on written down
cost (in first
00 Amoynt of value (in
Depreciation The amount of subsequent years).
400 . depreciation
remains constant. The amount of
Total Charge (i.e.,
900
depreciation plus Total chargein later
years is
decreasing. depreciation goes on
repairs and renewals) more as Total charge remains
600 compared to that in
earlier years since almost uniform
the amount year after year, since in earlier
100 of
repairs and renewals the amount of years
increasing as the assetgoes on and the amount of depreciation
is
more
older, whereas the grows renewals is repairs and
less whereas in
depreciation remainsamount of the amount of depreciation later
is less
yearS,
year after year. constant the amount of and
IS more.
repairs and renewaio
 11.26 Financial Accouny
Straight Line Method ountin
Basis of Distinction Written Down
The book value of the asset The b0ok value of Value Mothos
Book Value
becomes zero or equal to its become zero the s3el does na
Scrap value.
This method is suitable for those This method is
Suitability assets in relation to which assets in relationsuitable for th.
(a) repaircharges are less (b) the amount of repairs and
to which (ahos4
possibility of obsolescence is on increasing
as
and (b) the
newals goesIho
the asset q
less.
older
possibilities of obsl
Scence are more.
bsole-
Calculation-Easy or It is easy to calculate the rate It is difficult to calculate
of depreciation. depreciation. the rate ot
Difficult

BY CREATING PROVISION FOR DEPRE,

RECORDING OF DEPRECIATION ATION
ACCOUNT

this method of recording depreciation,

depreciation is credited to the Provision for Den
Under
Account and as a result, the Respective Asset Account appears at its Original Cost. When eciation
t
IS prepared to ascertain profit or loss
asset discarded, Asset Disposal Account
is sold or Asset
Account is debited with the original cost of the asset disposed off and is credited with
Disposal
depreciationon the asset disposed off and (6) the sale proceeds of the
(a) the accumulated
disposed
asset
off. The excess of debit side total over the credit side total represents the lnce.on
Loss Account. The excesso
asset disposed off and is transferred to the debit of Profit and
credit side total over the debit side total represents the profit on asset disposed off and is transfeed
to the credit of Profit and Loss Account. The various journal entries to be passed are summarized

as follows:

Depreciation A/c Dr.

1. For providing depreciation
To Provision for Depreciation Alc

For closure of Depreciation A/c Profit and Loss A/c Dr.

2
To Depreciation A/c
3. On disposal of an Asset

() For transfer of original cost of Asset Disposal Alc Dr

asset disposed off To Asset Alc

i') For transfer of accumulated Provision for Depreciation A/c Dr

depreciation on asset disposed off To Asset Disposal Alc

Cash A/c/Bank Alc Dr.

I) For recording sale proceeds
To Asset Disposal Ac

(iV) For transfer of the balance in

Asset Disposal Account
(a) In case of profit Asset Disposal Alc Dr
To Profit and Loss Ac
(b) In case of loss Dr.
Profit and Loss Ac
To Asset Disposal Ac

Illustration 20 On 1 January 20xI,X Lid. purchased a machinery for Rs 12,00,000. On

20X3, a part of the machinery purchased on I January 20X1 for Rs 80,000 was sold for Rs 4300
and a new machinery at a cost of Rs 1,58,000 was purchased and installed on the same u
St
The company has adopted the method of providing 10% p.a. depreciation on the original
of the machinery.
Show the necessary ledger accounts assuming that (a) Provision for Depreeliation
Required
Account is not maintained, (b) "ProvisIOn lor Depreciation Account is maintained.