Accounting

for
Depreciation
Account
EXAM CRACKER BSEB 2023
Prepared By
By S.P. Chandravanshi
Director of Active Commerce classes and Expodium
Ventures Pvt. Ltd., faculty at B.S. College, Patna and Impact
college Patna. S.P Chandravanshi has 14 years of teaching
Experience in the field of Accounts, Economics, and
Management in the various university in Bihar and also get the
“Students Choice Award 2021” for receiving the
greatest number of verified student Testimonials in
November 2021, December 2021and January 2022,
and was selected in the “Top 1% Educator in India”
according to Class plus and “Digital Educator
Award” in January 2022

Published By
Active commerce classes
A unit of Expodium Ventures Pvt. Ltd.
Accounting for Depreciation

Chapter Review In this chapter we will know the meaning of

Depreciation and the recording of transactions related to
depreciation, the importance of depreciation, and How
Depreciation is necessary to show the true value of assets and
liabilities within the business.

Chapter outline
Learning objective
o Introduction
o Meaning
o Causes of Depreciation
o How to calculate
o Characteristics of Depreciation
o Need for charging Depreciation
o Factors affecting the amount of depreciation
o Important term of depreciation
o Method of deprecation
o Straight line method
o Written Down Value Method
o Accounting treatment
o Distinction between straight-line method and written down
method.
Introduction In every business, assets plays a vital role in various
aspects. On the one hand, assets are important to earn profit and or
generate revenue, on the other hand, acids are essential to show the
financial position of the business based on fundamental accounting
examination Going Concern acids are classified as fixed assets and
current assets some examples of fixed assets are building
machinery furniture and other office equipment the value of these
acids are changing day by day generally the value is decreasing by
the various causes identifying the value of assets after every year is
important to show the absolute position of the business and
multiple aspects so the reduced value of the asset is called
depreciation.
So shortly Depreciation refers to the decreased value of assets due
to regular use, physical wear and tear, expiration of legal rights,
effluxion of time and obsolescence.

Causes of Depreciation
Regular uses
Assets are things of the business which are purchased to use.
It takes part in the business to run the business directly. So
due to regular uses in the business, the value of the assets will
not remain like that at the time of purchase.

Expiration of legal rights

Some assets are such that permission is required for the use
of a particular time, after the expiry of that permission, the
use of the assets can be objected to. The value keeps on
decreasing and this too will be considered a type of
depression

we can take the example of vehicles because a particular

type of technology is used in vehicles like BS3, BS4 and
BS5, there is a time limit as to how many days this
technology can be used in the market. As soon as new
technology comes into the market, old technology is banned,
we will call it the expiration of legal rights and the reduction
in the value of the vehicles due to the end of the legal rights
to use it is called depreciation.
The council decreed that ‘due to
supply-chain disruptions related to the
coronavirus, the PCI Council has
extended the expiration date of PIN
Transaction Security Point-of-Interaction (PTS POI) v3
devices from 30 April 2020 to 30 April 2021.’
The PCI Council also encouraged countries not affected by
COVID19 to deploy “next-generation” payment devices,
those certified for PTS POI v4 or v5, and migrate to POI v6
devices when the standard is released later this year. The PCI
Council, after consulting industry stakeholders, also
identified that coronavirus control measures will affect the
planned rollout of POI v3 devices.
The PCI Council recognises that older POI devices may be
vulnerable to withstand certain breaches & attacks, they did
not however believe that this limited one-year extension of
the approval expiry date for POI v3 devices will materially
impact that risk.

With the effluxion of time

With time, it is believed that any asset is getting old whether
it is used or not, its value keeps on decreasing, and it will also
be considered a type of depression.

Physical wear and tear

When an asset is kept in business for a
long period, its value also decreases due
to normal maintenance. Because the
property gets old due to normal
maintenance. Many problems arise in it,
such as being lighter than its normal colour, scratches, dirt
 coming, there are many such reasons, due to which its value
decreases, we will also name this reduction as depreciation.

Obsolescence / exhaustion
It is also an important cause of the decrease in the value of
assets in this due to come new technology, the old technology
of the market can decline and also it can decline the demand
of the product having the old technology in the market.

Accidents
An accident is also an important reason for the depreciation
of assets because due to an accident assets cannot work like
work before the accident.

Changes in the economic environment

Sometimes, due to the market's economic environment, the
property's value can also decrease, as if the government has
banned the use of a particular asset, then the market value of
that property will decrease. ne
By Depletion
This term is specially used to express the decrease in the
value of mines, oil wells, etc due to their use.

How to calculate
Deprecation can be calculated as under
I. When the rate of Depreciation is given in the questions
II. when the rate of depreciation is not given in the
questions

When the Rate of Depreciation is

given in the questions
Step
Original Cost = Purchase Price + Expenses to be capitalised

Step
Rate Month
Depreciation = original cost of assets X 1 oo X 12

Example
A business purchased a machine for ₹100,000 on 1st April 2019.
Calculate the rate of depreciation @1O% p.a. for the year ended on
31st march 2020.
Solution
Rate Month
Depreciation = original cost of assets X 1 oo X 12

10 12
= 100000 X 1 oo X 12

= 10,000 Ans.
Exercise 1
1. A business purchased a machine for ₹200,000 on 1 st April
2019. Calculate depreciation @1O% p.a. for the year ended
on 31st March 2020.

2. A business purchased a machine for ₹100,000 on 1 s July

2019. Calculate the rate of depreciation @1O% p.a. for the
year ended on 31st March 2020.

3. A machine is purchased on 1st April 2013 worth ₹80,000 and

another machine is purchased on 1 st July worth ₹50,000.
Calculate the depreciation of both machines for the year
ended on 31st march 2014.
 4. A business purchased a machine for ₹100,000 on 1 st April
2019 and spend ₹20,000 on the installation. Calculate
depreciation @1O% p.a. for the year ended on 31 st march
2020.

5. A business purchased a machine for ₹100,000 on 1 st April

2019 and paid installation charges of ₹ 10,000 Calculate
depreciation @5 % p.a. for three years if books of accounts
are closed on 31st march of every year.

6. A business purchased a machine for ₹100,000 on 1 st April

2019 and paid installation charges of ₹ 5,000 Calculate the
value of the machine at the end of accounting year. If the rate
of depreciation @ 15 % p.a. for the year ended on 31 st march
2020.
7. A business purchased a machine for ₹100,000 on 1 st April
2019 and paid installation charges of ₹ 5,000 Calculate the
value of the machine on 1st October 2021, the rate of
depreciation @ 15 % p.a. for the year ended on 31 st march
2020.

When the Rate of Depreciation

is not given in the questions
Step

The original cost of Assets = Purchase Price + Expenses to be capitalised

Step
 Original Cost Of Assets−Scrap Value
Amount of Depreciation = Expected Useful Life Of The Assets

Step

Amount of Depreciation X 100

Rate of Depreciation = Useful life of the Assets

Example 2
A business purchased a machine for ₹ 1,00,000 and paid
installation charges of ₹20,000. The expected useful life of the
machine is 4 years and its estimated residual value is ₹ 60,000.
Calculate the rate of depreciation
Solution
Step 1
The original cost of Assets = Purchase Price + Expenses to be capitalised.
Original cost of Assets = 1,00,000 + 20,000 = 1,20,000
Step 2
Original Cost Of Assets−Scrap Value
Amount of Depreciation =
Expected Useful Life Of The Assets

1, 20,000−60,000
Amount of Depreciation = 4
= 15,000
Step 3
Amount of Depreciation X 100
Rate of Depreciation = Useful life of the Assets

15,000 X 100
Rate of Depreciation = 1 ,00,000 = 15% Ans.

Exercise 2
1. A machine is purchased on 1st April 2019 for ₹80,000 and
spent ₹ 12,000 and on its cartage ₹ 8,000 on its erection. On
 the date of purchase, it was estimated that the effective life of
the machine will be 10 years; after 10 years, its scrap value is
₹40,000.
Ans 8%
2. On 1st April 2019 a business purchased a machine for ₹
80,000 and spent ₹ 20,000 on its cartage and installation. The
residual value at the end of its expected useful life of 4 years
is estimated at ₹40,000. Calculate the amount of depreciation
for the year ended on 31st March 2020.
3. On 1st October 2019 a business purchased a machine for ₹
80,000 and spent ₹ 20,000 on its cartage and installation. The
residual value at the end of its expected useful life of 4 years
is estimated at ₹40,000. Calculate the amount of depreciation
for the year ended on 31st March 2020.
4. A machine is purchased on 1st April 2019 for ₹80,000 and
spent ₹ 12,000 and on its cartage ₹ 8,000 on its erection. On
the date of purchase, it was estimated that the effective life of
the machine will be 10 years; after 10 years its scrap value is
₹40,000. What will be the value of assets after 3 years?
5. A machine is purchased for ₹ 60,000 on 1 st April and on the
same day another machine is purchased for ₹80,000 and
spent ₹ 5,000 and ₹6,000 respectively on their installation.
Calculate the amount of depreciation @ 10% p.a. for the year
ended on 31st March 2021.

Calculation of profit or loss

on sale of Assets
Book value of assets on the date of purchase xxx
Less: Depreciation xxx
(Form the date of purchases to the date of sale.)
Book value of assets as on date of sale xxx
Less: sale proceed xxx
Profit/Loss on sale of Assets xxx

Illustration 3
A Machine is purchased for ₹ 600000 and paid installation charges
of ₹ 20,000 on 1st Jan 2012. Depreciation is be provided @ 10%
p.a. according straight-line method. This machine is sold for ₹
4,50,000 on 31 March 2015. Calculate profit or loss on the sale of
the machine. If the books of accounts are closed on 31 st March of
every year.
Solution: -
Book value of assets on the date of purchase 6,00,000
Less: Depreciation 1,80,000
(Form the date of purchases to the date of sale.)
Rate Month
The original cost of assets X 1 oo X 12
10 36
6,00,000 X 1 oo X 12

Book value of assets as on date of sale 4,20,000

Less: sale proceed

4,50,000
Profit/Loss on sale of Assets 30,000

Exercise 3
1. A business purchased for ₹ 1,00,000 on 1st April 2019.
Depreciation will be calculated @ 10% p.a. according to the
straight-li, method the owner of the business decided to sell it
and purchase a new machine of new technology. And finally,
after 28 months machine is sold for ₹ 65,000. Show
 calculates the amount of depreciation from the date of
purchase to the date of sale.

2. A business purchased for ₹ 1,00,000 on 1st April 2019.

Depreciation will be calculated @ 10% p.a. according to the
straight-li, method the owner of the business decided to sell it
and purchase a new machine of new technology. And finally,
after 28 months machine is sold for ₹ 65,000. Show
calculates the amount of depreciation from the date of
purchase to the date of sale.

3. X ltd. Purchased a second-hand machine for ₹ 5,00,000 and

spent ₹ 1,00,000 on its repairs. Depreciation is to be provided
@ 10% p.a according to the straight line method. This
machine is sold for ₹ 4,50,000. Calculate the profit or loss on
the sale of the machine if the date of purchase is 1.4. 2012
and sale of sale are 31.3.2015 according to the straight-line
method. The accounting year is the financial year.

4. X ltd. Purchased a second-hand machine for ₹ 5,00,000 and

spent ₹ 1,00,000 on its repairs. Depreciation is to be provided
@ 10% p.a according to the straight line method. This
machine is sold for ₹ 4,50,000. Calculate the profit or loss on
the sale of the machine if the date of purchase is 1.4. 2012
and sale of sale are 30.9.2014 according to the straight-line
method. The accounting year is the financial year.

5. X ltd. Purchased a second-hand machine for ₹ 5,00,000 and

spent ₹ 1,00,000 on its repairs. Depreciation is to be provided
@ 10% p.a according to the straight line method. This
machine is sold for ₹ 4,50,000. Calculate the profit or loss on
the sale of the machine if the date of purchase is 1.7. 2012
and sale of sale are 31.3.2015 according to the straight-line
method. The accounting year is the financial year.
 6. X ltd. Purchased a second-hand machine for ₹ 5,00,000 and
spent ₹ 1,00,000 on its repairs. Depreciation is to be provided
@ 10% p.a according to the straight line method. This
machine is sold for ₹ 4,50,000. Calculate the profit or loss on
the sale of the machine if the date of purchase is 1.7. 2012
and sale of sale are 30.9.2014 according to the straight-line
method. The accounting year is the financial year.

Recording of Depreciation by charging to

Asset Account Method.
Journal entries
Steps 1

To record purchase of Assets

Assets A/c Dr.
To cash
(Being the assets purchased.)

Steps 2

To record the payment for installation, carriage and wages

Assets A/c Dr.
To cash
(Being the installation, carriage and wages)

Steps 3

To provide depreciation
Depreciation A/c Dr.
To Machinery A/c
(Being he depreciation charged )

Steps 4
To record the sale of assets
Cash/ Bank A/c Dr.
To Assets A/c
(Being the assets sold.)

Steps 5

To record Profit/ Loss

a) In case of profit
Assets A/c Dr.
To P&L A/c
(Being the profit transferred to P&L A/c.)

b) In case of loss
P&L A/c Dr.
To Assets A/c
(Being loss on sale of assets transferred top &L A/c .)

Illustration 4

1. On 1st October 2016 A Ltd. purchased a machine for Rs

2,00,000 on credit. Installation expenses Rs 25,000 are
paid by cheque. The estimated life is 5 years and its
scrap value after 5 years will be Rs 20,000. Depreciation
is to be charged on a straight-line basis. Show the journal
entries and prepare the machinery account for the first
three years.

Solution Books of A Ltd.

Journal

Date Particulars L.F Dr. Cr.

2016
Oct. 1 Machinery A/c Dr 2,25,00
To Creditors A/c (for machinery) 2,00,000
To Bank A/c 25,000
(Being machinery bought on credit and Rs
25,000 paid
For installation through cheque)
2017 Depreciation A/c Dr 20,500
Mar.31 To Machinery A/c 20,500
(Being depreciation charged on Machinery
for six months)
Mar.31 Profit & Loss A/c Dr 20,500
To Depreciation A/c 20,500
(being depreciation transferred to profit and
loss account )
2018 Depreciation A/c Dr 41,000
Mar.31 To Machinery 41,000
(Being depreciation charged on machinery)

Mar.31 Profit & Loss A/c Dr 41,000

To Depreciation A/c 41,000
(Being depreciation transferred to profit and
loss account)
2019 Depreciation A/c Dr 41,000
Mar.31 To Machinery 41,000
(Being depreciation charged on machinery)

Mar.31 Profit & Loss A/c Dr 41,000

To Depreciation A/c 41,000
(Being depreciation transferred to profit and
loss account )

Dr. Machinery Account Cr.

Date Particular Rs Date Particulars Rs

2016 2017
Oct.1 To Creditors A/c(for 20,00,000 Mar.31 By Depreciation A/c 20,500
Oct.1 Machinery) 25,000 Mar.31 By Balance c/d 2,04,500
 To Bank A/c 2,25,000 2,25,000
2018
2017 Mar.31 By Depreciation A/c 41,000
Apr.1 2,04,500 Mar.31 By Balance c/d 1,63,500
To Balance b/d 2,04,500 2,04,500
2019
1,63,000 Mar.31 By Depreciation A/c 41,000
2018 To Balance b/d Mar.31 By Balance c/d
Apr. 1 1,63,000 1,22,500

1,63,500

Working notes:
1. Calculation of annual depreciation:
Depreciation (p.a.) = (2,00,000 + 25,000 – 20,000)/5
= 41,000 per annum
2. It is assumed that Ashwani is a sole proprietor therefore, the
term ‘Profit & loss A/c is used.

Depreciation Account
Dr. Cr.
Date Particular Rs Date Particulars Rs
2012 2017
Mar.31 To Machinery A/c 20,500 Mar.31 By Profit & Loss A/c 20,500

20,500 20,500
2018
2018 Mar.31 By Profit & Loss A/c
Mar.31 To Machinery A/c
41,000 41,000
2019
2019 Mar.31 By Profit & Loss A/c 41,000
41,000
Mar.31 To Machinery A/c
41,000 41,000
41,000
Exercise 4
Straight Line Method
1. B & Co. purchased a machine for Rs 80,000 on January 1, 2003.
A depreciation of 10% is written off every year on original cost.
Prepare machine accounts for 5 Years. Accounts are closed on
December 31 every year.

2. A trade purchased a machine for Rs 10,000 on January 1, 2003.

The life of the machine is 5 Years and its scrap value is Rs 1,000.
How much depreciation should be charged according to Straight
Line Method? Prepare machine for two years. Accounts are closed
on December 31 every year.

3. A machine was purchased for Rs 45,000 on January 1, 2003 and

another Rs 5,000 were spent on its erection. The effective life of
the machine is 10years and the scrap value is Rs 2,000. Calculate
the amount of depreciation according to straight line method.
prepare machine account for three years. Accounts are closed on
December 31 every year.

4. Prepare machine account from following information:

Date Rs
January 1, 2005 purchased an old Machine
18,000
January 1, 2005 spent on its over hauling 2,000
July 1, 2005 purchased another machine 40,000
Rate of depreciation is 10% on straight line method; accounts
are closed on December 31. Prepare machine account for two
years.

5. A trade purchased an Almirah for Rs 10,000 on January 1, 2005.

Its scrap value is Rs 1,000. On October 1, 2005 it purchased a
Table for Rs 6,000. Its scrap value is Rs 500. Depreciation rate is
 10% on straight Line Method. Prepare machine account for 3
years. Accounts are closed on December 31 every year.
6. On January 1, 2003; a business man purchased a plant for Rs
3,00,000 and spent Rs 10,000 on freight and Rs 5,000 on
installation of the plant. The scrap value of the machine will be Rs
25,000 at the end of its life after 5 Years. Depreciation is charged
on straight line method.

7. On January 1, 2006 a machine was purchased for Rs 20,000.

Another machine was purchased for Rs 30,000 on July 1, 2007 the
first machine was sold for Rs 12,000. Rate of depreciation is 10%
on straight line method.

8. On January 1, 2006; Amar purchased a fixed asset for Rs 80,000.

Depreciation is charged at 10% on original cost. This fixed asset
was sold on October 1, 2008 for Rs 55,000. Prepare fixed asset
account for Rs 2006, 2007 and 2008. Accounts are closed on
December 31 every year.

9. B & Co. purchased a second hand machine on January 1, 2006 for

Rs 30,000 and spent another Rs 10,000 repairs to make it
workable. Depreciation @ 10% on straight Line method. on July
1, 2008 the machine was sold for Rs 20,000. Prepare machine
account upto July 1, 2008. Year end on December 31.

10. A trade purchased a machine on January 1, 2007 for Rs

60,000. He purchased another machine for Rs 40,000 on July 1,
2008. On October 31, 2008 he sold the first machine for Rs
42,000 and purchased a new machine for Rs 40,000 on the same
date. Depreciation rate was 10% on straight line method. prepare
machine account for the year 2007 and 2008 years on December
31.

11. On April 1, 2007 an old machine was bought for Rs 4,

80,000 and Rs 20,000 was spent on its overhauling. The
installation expenses were Rs 25,000. The useful life of the
machine is 20 years. It will have a scrap value of Rs 10,000. The
 machine did not work properly and therefore it was sold for Rs
3,00,000 on December 31, 2008.
Make machine account for two years ending December 31,
2008.

12. A transporter purchased 5 trucks for Rs 2,00,000 each on

January 1, 2005. Depreciation of 10% is written of under straight
line method. On October 1 , 2007; one truck was skid fir Rs
1,15,000 and on the same day another truck was purchased for Rs
1, 80,000 and spent another Rs 10,000 on its reconditioning.
Prepare trucks account upto December 31, 2008

13. On January 1 , 2005 five machine were purchased for Rs

1,00,000.one more machine was purchase for Rs 40,000 on July 1,
2005. On June 30, 2006 one machine whose cost was Rs 20,000
on January 1, 2005 was sold for Rs 12,300 and a new machine
was purchased for Rs 12,000 on the same date. Depreciation rate
is 10% on original cost.
Prepare machine account upto December 31, 2007. Year ends
on December 31.

14. On April 1, 2006 Mr. Lal purchased three machine for Rs

40,000 each. Another machine was purchased on October 1, 2006
for Rs 40,000. On July 1, 2007 one of the machines purchased on
April 1, 2006 was found defective and was sold for Rs 30,000 and
a new machine was purchased on the same date for Rs 80,000
depreciation is charged at 10% (straight line method). Prepare
machine account for the year 2006 and 2007. The year ends on
December 31.

15. R. Rattan closes his books on March 31, every year. He

bought a machine for Rs 3,60,000 on July 1, 2004. Another
machine was purchased for Rs 2,40,000 on January 1, 2005 and
another on October 1, 2005 for Rs 60,000. On April 1, 2006 one
third of the first machine was sold for Rs 92,600. Prepare machine
 account upto March 31, 2007. Rate of depreciation is 10% straight
line method.

Diminishing Balance Method

16. A purchased a machine on January 1, 2013 for Rs 1,50,000
and spent Rs 20,000 on its installation. Deprecation is to be
charged at 10% on written down value method. prepare machine
account for four years, year ends on December 31.

17. Sandip purchased a truck for Rs 5,00,000 on January 1, 204.

It bought another truck for Rs 4,00,000 on October 1, 2004. The
third truck was purchased for Rs 3,60,000, on April 1, 2006.
Depreciation is charged at 10% on Diminishing Balance Method.
Prepare Truck account upto December 31, 2007.

18. A trader bought a building for Rs 10,00,000 on May 1, 2004.

He added another storey to the building in on January 1, 2005 and
spent Rs 2,00,000. Depreciation is charges at 12% on Diminishing
Balance Method. Prepare Building account upto December 31,
2007.

19. A machine was purchased for Rs 30,000 on March 31, 2003.

Another machine purchased for Rs 30,000 on September 1, 2004.
The tird machine was purchased for Rs 24,000 on December 1,
2005. Depreciation is charged at 10% on Diminishing Balance
Method. Prepare machine account upto March 31, 2007.

20. A & B Co. bought a machine for Rs 1,00,000 and a boiler

for Rs 20,000 on January 1, 2003. Depreciation has been charged
at 10% on reducing balance method. on July 1, 2005 the boiler
became useless and was sold for Rs 8,000.
Prepare machine account for five years, ending on December
31, 2007
21. Five machine were bought on March 31, 2003 for Rs
25,000. Rs 5,000 was spent their installation. Depreciation is
being charged at 10% on Diminishing Balance Method. On
August 31, 2006 one machine was sold for Rs 3,000 and a new
machine was purchased on the same date for Rs 5,000. Give
machine account for four years ending on March 31, 2007.

22. A maerchant purchase five machine on January 1, 2005 for

Rs 50,000. He bought another machine for Rs 40,000 on April
2006. On November 30, 2006 one of the first machines was sold
for Rs 16,000 and a new machine was purchased on the same date
for Rs 20,000. Depreciating is charged at 10% on Reducing
Balance Method. give machine account upto December 31, 2007.

23. On April 1, 2004 Bharat purchased a plant costing Rs

1,20,000. Other plants were purchased on October 1, 204 for Rs
80,000 and on December 1, 2004 for Rs 10,000. On January 1,
2006 half of the plant purchased on Arpil 1, 2004 was sold for Rs
40,000. Depreciation is charged at 10% on Diminishing Balance
Method. prepare machine account for 3 years ending March 31,
2007.

24. On January 1 , 2005 a machine was purchased for Rs

24,000; another machine were purchased for Rs 16,000 on June 1,
2006. On November 30, 2007 one machine costing Rs 6,000
purchased on January 1, 2005 was sold for Rs 2,800. Depreciation
rate is 10% on Diminishing Balance Method. Prepare machine
account for three years ending December 31, 2007.

25. D. Das purchased on January 1, 2005 a machine for Rs

1,20,000 and spent Rs 30,000 on its erection. Another machine
was bought on July 1, 2006 for Rs 50,000. The machine
purchased on January1, 2005; was sold for Rs 62,000 on June,
2007 and a new machine was purchased Rs 60,000. Depreciation
is charged at 12% on reducing balance Method. Prepare machine
account upto December 31, 2007.
NCERT ZONE
Depreciation, Provisions and Reserves
Illustration 1
M/s Singhania and Bros. purchased a plant for Rs. 5,00,000 on April 01
2002, and spent Rs. 50,000 for its installation. The salvage value of the
plant after its useful life of 10 years is estimated to be Rs. 10,000.
Record journal entries for the year 2002-03 and draw up Plant Account
and Depreciation Account for the first three years given that the
depreciation is charged using the straight-line method if :
(i) The books of account close on March 31 every year; and
(ii) The firm charges depreciation to the asset account.

Illustration 2
M/s Mehra and Sons acquired a machine for Rs. 1,80,000 on October
01, 2003, and spent Rs 20,000 for its installation. The firm writes off
depreciation at the rate of 10% on the original cost every year. Record
necessary journal entries for the year 2003 and draw up Machine
Account and Depreciation Account for the first three years given that:
(i) The book of accounts closes on March 31 every year; and
(ii) The firm charges depreciation to an asset account.

Illustration 3
Based on data given in question number 2 record journal entries and
prepare the Machine account, Depreciation account and Provision for
Depreciation account for the first 3 years if the Provision for
depreciation account is maintained by the firm. Provided @10% p.a. on
a written down value basis. Prepare Machinery Account for the first
three years. Books are closed on March 31, every year.

Illustration 4
M/s. Dalmia Textile Mills purchased machinery on April 01, 2001, for
Rs. 2,00,000 on credit from M/s Ahuja and sons and spent Rs. 10,000
for its installation. Depreciation is

Illustration 5
M/s Sahani Enterprises acquired a printing machine for Rs. 40,000 on
July 01, 2001, and spent Rs. 5,000 on its transport and installation.
Another machine for Rs. 35,000 was purchased on January 01, 2003.
Depreciation is charged at the rate of 20% on written down value.
Prepare Printing Machine account for the years ended on March 31,
2002, 2003, 2004 and 2005.

Illustration 6
On January 01 2001, Khosla Transport Co. purchased five trucks for
Rs. 20,000 each. Depreciation has been provided at the rate of 10% p.a.
using the straight-line method and accumulated in the provision for
depreciation account. On January 01, 2002, one truck was sold for Rs.
15,000. On July 01, 2003, another truck (purchased for Rs. 20,000 on
Jan 01, 2001) was sold for Rs. 18,000. A new truck costing Rs. 30,000
was purchased on October 01, 2003. You are required to prepare truck
account, Provision for depreciation account and Truck disposal account
for the years ended on December 2001, 2002 and 2003 assuming that
the firm closes its accounts in December every year.

Illustration 7
On April 01, 2004, the following balances appeared in the books of M/s
Kanishka Traders:
Furniture account Rs. 50,000, Provision for depreciation on furniture
Rs. 22,000. On October 01, 2004, a part of furniture purchased for
Rupees 20,000 on April 01, 2000, was sold for Rs. 5,000. On the same
date new furniture costing Rs. 25,000 was purchased. The depreciation
was provided @ 10% p.a. on the original cost of the asset and no
depreciation was charged on the asset in the year of sale. Prepare
furniture account and provision for depreciation account for the year
ending March 31, 2005.

Illustration 8
Solve illustration 07, if the firm maintains a furniture disposal account
prepared along with a furniture account and provision for depreciation
on the furniture account.

Illustration 9
On Jan 01, 2001, Jain & Sons purchased a second-hand plant costing
Rs. 2,00,000 and spent Rs. 10,000 on its overhauling. It also spent Rs.
5,000 on transportation and installation of the plant. It was decided to
provide for depreciation @ of 20% on written down value. The plant
was destroyed by fire on July 31, 2004, and an insurance claim of Rs.
50,000 was admitted by the insurance company. Prepare plant account,
 accumulated depreciation account and plant disposal account assuming
that the company closes its books on December 31, every year.

Illustration 10
M/s Digital Studio bought a machine for Rs. 8,00,000 on April 01,
2000. Depreciation was provided on a straight-line basis at the rate of
20% of original cost. On April 01,2002 a substantial modification was
made in the machine to make it more efficient at a cost of Rs. 80,000.
This amount is to be depreciated @ 20% on straight line basis. Routine
maintenance expenses during the year 2003-04 were Rs. 2,000.
Draw up the Machine account, Provision for depreciation account and
charge to profit and loss account in respect of the accounting year
ended on March 31,2003.

Illustration 11
M/s Nishit Printing Press bought a printing machine for Rs. 6,80,000
on April 01, 2001. Depreciation was provided on straight line basis at
the rate of 20% on original cost. On April 01,2003 a modification was
made in the machine to increase its technical reliability, at a cost of Rs.
70,000. However this modification is not expected to increase the
useful life of the machine. At the same time an important component of
the machine was replaced at a cost of Rs. 20,000 due to excessive wear
and tear. Routine maintenance expenses during the year 2003-04 were
Rs. 5,000.
Show the Machinery account, Provision for depreciation account and
charge to profit and loss account in respect of the accounting year
ended on March 31, 2004.

Numerical Problems
1. On April 01, 2000, Bajrang Marbles purchased a Machine for Rs.
2,80,000 and spent Rs. 10,000 on its carriage and Rs. 10,000 on its
installation. It is estimated that its working life is 10 years and after 10
years its scrap value will be Rs. 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 31st 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 every year.
 (Ans: (a) Balance of Machine account on April 1, 2004 Rs.1,28,000.
(b) Balance of Provision for depreciation account as on
1.04.2004 Rs.72,000.)

2. On July 01, 2000, Ashok Ltd. Purchased a Machine for Rs. 1,08,000
and spent Rs. 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 Rs. 12,000.
Prepare 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 31st,
every year.
(Ans: Balance of Machine account as on 1.01.2003 Rs.97,500).

3. Reliance Ltd. Purchased a second hand machine for Rs. 56,000 on

October 01, 2001 and spent Rs. 28,000 on its overhaul and installation
before putting it to operation. It is expected that the machine can be
sold for Rs. 6,000 at the end of its useful life of 15 years. Moreover an
estimated cost of Rs. 1,000 is expected to be incurred to recover the
salvage value of Rs. 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 December 31, every
year.
(Ans: Balance of provision for depreciation account as on 1.01.04
Rs.18,200).

4. Berlia Ltd. Purchased a second hand machine for Rs. 56,000 on July
01, 2001 and spent Rs. 24,000 on its repair and installation and Rs.
5,000 for its carriage. On September 01, 2002, it purchased another
machine for Rs. 2,50,000 and spent Rs. 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 2001 to 2004.
(b) Prepare machinery account and depreciation account from the year
2001 to 2004, if depreciation is provided on machinery @10% p.a. on
written down value method annually on December 31.
(Ans: (a) Balance of Machine account as on 1.01.05 Rs.2,54,583.
(b) Balance of Machine account as on 1.01.05 Rs.2,62,448).
5. Ganga Ltd. purchased a machinery on January 01, 2001 for Rs.
5,50,000 and spent Rs. 50,000 on its installation. On September 01,
2001 it purchased another machine for Rs. 3,70,000. On May 01, 2002
it purchased another machine for Rs. 8,40,000 (including installation
expenses).
Depreciation was provided on machinery @10% p.a. on original cost
method annually on December 31. Prepare:
(a) Machinery account and depreciation account for the years 2001,
2002, 2003 and 2004.
(b) If depreciation is accumulated in provision for Depreciation account
then prepare machine account and provision for depreciation account
for the years 2001, 2002, 2003 and 2004.
(Ans: (a) Balance of machine account as on 01.01.05 Rs. 12,22,666.
(b) Balance of provision for dep. account as on 01.01.05 Rs.
5,87,334).

6. Azad Ltd. purchased furniture on October 01, 2002 for Rs. 4,50,000.
On March 01, 2003 it purchased another furniture for Rs. 3,00,000. On
July 01, 2004 it sold off the first furniture purchased in 2002 for Rs.
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
furniture account, and accumulated depreciation account for the years
ended on March 31,2003,
March 31,2004 and March 31,2005. Also give the above two accounts
if furniture disposal account is opened.
(Ans: Loss on sale of furniture Rs.1,14,915, Balance of provision for
depreciation account as on 31.03.05 Rs. 85,959.)

7. M/s Lokesh Fabrics purchased a Textile Machine on April 01, 2001 for
Rs. 1,00,000. On July 01, 2002 another machine costing Rs. 2,50,000
was purchased . The machine purchased on April 01, 2001 was sold for
Rs. 25,000 on October 01, 2005. The company charges depreciation
@15% p.a. on straight line method. Prepare machinery account and
machinery disposal account for the year ended March 31, 2006.
(Ans. Loss on sale of Machine account Rs.7,500. Balance of machine
account as on 1.04.05 Rs.1,09,375).

8. The following balances appear in the books of Crystal Ltd, on Jan 01,
2005
Rs.
 Machinery account on 15,00,000
Provision for depreciation account 5,50,000
On April 01, 2005 a machinery which was purchased on January 01,
2002 for Rs. 2,00,000 was sold for Rs. 75,000. A new machine was
purchased on July 01, 2005 for Rs. 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,
2005.
(Ans. Profit on sale of Machine Rs. 5,000. Balance of machine account
as on 31.03.05 Rs. 19,00,000.
Balance of Provision for depreciation account as on 31.03.05 Rs.
4,80,000).

9. M/s. Excel Computers has a debit balance of Rs. 50,000 (original cost
Rs. 1,20,000) in computers account on April 01, 2000. On July 01,
2000 it purchased another computer costing Rs. 2,50,000. One more
computer was purchased on January 01, 2001 for Rs. 30,000. On April
01, 2004 the computer which has purchased on July 01, 2000 became
obsolete and was sold for Rs. 20,000. A new version of the IBM
computer was purchased on August, 2004 for Rs. 80,000. Show
Computers account in the books of Excel Computers for the years
ended on March 31, 2001, 2002, 2003, 2004 and 2005. The computer is
depreciated @10 p.a. on straight line method basis.
(Ans: Loss on sale of computer Rs. 1,36,250. Balance of computers
account as on 31.03.05 Rs. 80,583).

10. Carriage Transport Company purchased 5 trucks at the cost of Rs.

2,00,000 each on April 01, 2001. The company writes off depreciation
@ 20% p.a. on original cost and closes its books on December 31,
every year. On October 01, 2003, one of the trucks is involved in an
accident and is completely destroyed. Insurance company has agreed to
pay Rs. 70,000 in full settlement of the claim. On the same date the
company purchased a second hand truck for Rs. 1,00,000 and spent Rs.
20,000 on its overhauling. Prepare truck account and provision for
depreciation account for the three years ended on December 31, 2003.
Also give truck account if truck disposal account is prepared.
(Ans: Loss of settlement of Truck Insurance Rs.30,000. Balance of
Provision for depreciation A/c as on 31.12.03 Rs.4,46,000. Balance of
Trucks account as on 31.12.03 Rs.9,20,000).
11. Saraswati Ltd. purchased a machinery costing Rs. 10,00,000 on
January 01, 2001. A new machinery was purchased on 01 May, 2002
for Rs. 15,00,000 and another on July 01, 2004 for Rs. 12,00,000. A
part of the machinery which originally cost Rs. 2,00,000 in 2001 was
sold for Rs. 75,000 on October 31, 2004. Show the machinery account,
provision for depreciation account and machinery disposal account
from 2001 to 2005 if depreciation is provided at 10% p.a. on original
cost and account are closed on December 31, every year.
(Ans: Loss on sale of Machine Rs.58,333. Balance of Provision for dep.
A/c as on 31.12.05 Rs. 11,30,000. Balance of Machine A/c as on
31.12.05 Rs.35,00,000).

12. On July 01, 2001 Ashwani purchased a machine for Rs. 2,00,000
on credit. Installation expenses Rs. 25,000 are paid by cheque. The
estimated life is 5 years and its scrap value after 5 years will be Rs.
20,000. Depreciation is to be charged on straight line basis. Show the
journal entry for the year 2001 and prepare necessary ledger accounts
for first three years.
(Ans: Balance of Machine A/c as on 31.12.03 Rs.1,22,500).

13. On October 01, 2000, a Truck was purchased for Rs. 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, 2003 this
Truck was sold for Rs. 5,00,000. Accounts are closed on 31st March
every year. Prepare a Truck Account for the four years.
(Ans: Profit on Sale of Truck Rs.55,548).

14. Kapil Ltd. purchased a machinery on July 01, 2001 for Rs.
3,50,000. It purchased two additional machines, on April 01, 2002
costing Rs. 1,50,000 and on October 01, 2002 costing Rs. 1,00,000.
Depreciation is provided @10% p.a. on straight line basis. On January
01, 2003, first machinery become useless due to technical changes.
This machinery was sold for Rs. 1,00,000. prepare machinery account
for 4 years on the basis of calendar year.
(Ans: Loss on sale of machine Rs. 1,97,500. Balance of Machine
account as on 1.01.05 Rs. 1,86,250).

15. On January 01, 2001, Satkar Transport Ltd, purchased 3 buses for
Rs. 10,00,000 each. On July 01, 2003, one bus was involved in an
 accident and was completely destroyed and Rs. 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 2001 to 2004. Books are closed on December 31 every year.
(Ans: Profit on insurance claim Rs. 31,687. Balance of Bus account as
on 1.01.05 Rs. 10,44,013).

16. On October 01, 2001 Juneja Transport Company purchased 2

Trucks for Rs. 10,00,000 each. On July 01, 2003, One Truck was
involved in an accident and was completely destroyed and Rs. 6,00,000
were received from the insurance company in full settlement. On
December 31, 2003 another truck was involved in an accident and
destroyed partially, which was not insured. It was sold off for Rs.
1,50,000. On January 31, 2004 company purchased a fresh truck for Rs.
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 2001 to 2004.
(Ans: Loss on Ist Truck Insurance claim Rs. 1,41,000. Loss on IInd
Truck Rs. 5,53,000. Balance of Truck account as on 31.03.04 Rs.
11,80,000).

17. A Noida based Construction Company owns 5 cranes and the

value of this asset in its books on April 01, 2001 is Rs. 40,00,000. On
October 01, 2001 it sold one of its cranes whose value was Rs. 5,00,000
on April 01, 2001 at a 10% profit. On the same day it purchased 2
cranes for Rs. 4,50,000 each.
Prepare cranes account. It closes the books on December 31 and
provides for depreciation on 10% written down value.
(Ans: Profit on sale of crane Rs. 47,500. Balance of Cranes account as
on 31.12.01 Rs. 41,15000).

18. Shri Krishan Manufacturing Company purchased 10 machines for

Rs. 75,000 each on July 01, 2000. On October 01, 2002, one of the
machines got destroyed by fire and an insurance claim of Rs. 45,000
was admitted by the company. On the same date another machine is
purchased by the company for Rs. 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 2000 to 2003.
 (Ans: Loss on settle of insurance claim Rs. 7,735. Balance of Machine
account as on 31.12.03 Rs. 6,30,393).

19. On January 01, 2000, a Limited Company purchased machinery

for Rs. 20,00,000. Depreciation is provided @15% p.a. on diminishing
balance method. On March 01, 2002, one fourth of machinery was
damaged by fire and Rs. 40,000 were received from the insurance
company in full settlement.
On September 01, 2002 another machinery was purchased by the
company for Rs. 15,00,000.
Write up the machinery account from 2002 to 2003. Books are closed
on December 31, every year.
(Ans: Loss on settle of insurance claim Rs. 12,219. Balance of Machine
account as on 01.01.04 Rs 19,94,260).

20. A Plant was purchased on 1st July, 2000 at a cost of Rs. 3,00,000
and Rs. 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 Rs. 1,50,000 on October 01, 2002 and on the same date a new Plant
was installed at the cost of Rs. 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: Loss on sale of Plant Rs. 81,875. Balance of Machine account as
on 01.01.03 Rs. 15,000. Balance of Provision for Depreciation account
as on 01.01.03 Rs. 15,000.)
21. An extract of Trial balance from the books of Tahiliani and Sons Enterprises on
December 31 2005 is given below:
Name of the Account Debit Amount Credit
Amount
(Rs.) (Rs.)
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 Rs. 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: New provision for Bad debts Rs. 3,840, profit and loss account
(Dr.) Rs. 7,840.)

22. The following information are extract from the Trial

Balance of M/s Nisha traders on 31 December 2005.
Sundry Debtors 80,500
Bad debts 1,000
Provision for bad debts 5,000
Additional Information
Bad Debts Rs. 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: New provision Rs. 1,600 Profit and loss account [Cr.]
Rs. 1,900).