11/2·16
DEPRECIATION ACCOUNTING ~
(2) Deprecfation on discarded machine
For Nine Months
Book value on 1-4-2015 f
Depreciation for g months (upto 31-12-2015) 20,776
(3) Depreciation on machinery in use 1,558
Cost of machinery on 1-4-2015 f
Less : Cost of discarded machinery 6,25,000
27,000
Less: Provision for depreciation as on 1-4-201s f 5,98,000
Less: Related to discarded machines 2,62,500
6,224
Book Value on 1-4-2015 2,56,276
3,41,724
Depreciation - 10% thereof
Add: Depreciation on f 87,500 for three months ( 34,172
. addition) 2,187
36,359
0 Change of Method
Sometimes the method is changed either fro
method or from diminishing balance method t . .
st ra~ght h~e method to diminishing balance
particular year or with retrospective effect. If the \ st raig~t line method with effect from the
be no problem but simply to change the metnoc ange is fr?~ particular year, then there will
effective with retrospective effect, then first of a~ of depreciation. But if the change is to be
which date the method is changed, is to be calcui value of as~e! on the beginning date from
by existing as well as by the changed method ated. -De~rec1ation ~hou~d be calculated both
year's Asset Account by giving debit or credit t and t~e difference is adJusted in the current
O
Accounting Standard 6 'Depreciation Accounr :rofit and Loss Account. As per para 15 of
depreciation is calculated in accordance with~i when method of depreciation is _changed,
coming into use. The deficiency or surplus .e. new method from the date of the asset
depreciation in accordance with new method i an~ing fr~m retrospective recomputation of
the method of depreciation is charged. The wo~k~dJUSted in th e accounts in the ye~r to which
clear from the following 'illustrations'. ng of th e change of the method will be more
ILLUSTRATION 7. (From SLM to DBM from a particular year) ABC Ltd. purchased on
1st Jan~ary? 2010 secondhand Pl~~t for f 30,000 and immediately spent <20,000 in
· overhauling 1t. On 1st July 2010 additional machinery of a cost of <25,000 was purchased.
On 1st July, 2012, the plant purchas_ ed on 1st January, 201 o became obsolete and was sold
for ~ 10,000. On that date new machinery was Purchased at a cost of <60,000.
Depreciation was provided for annually on 31st December at 10% per annum on the
original cost of the asset. In 20 13, however, the company changed this method of providing
for depreciation and adopted the method of writing off 15% on the diminishing value.
Show Plant & Machinery Account as it would appear in the books of the company for the
years 201 O to 2015.
SOLUTION
PLANT & MACHINERY ACCOUNT
2010 < 2010 <
Jan. 1 To Bank Ale 30,000 Dec. 31 By Depreciation A/c 6,250
" To Bank Ale 20,000 (f 5000 +
July 1 To Bank Ale 25,000 <1,250)
" By Balance c/d 68,750
75,000
75,000
I
-·-- ---· -
- U/2•17
2011 7 ,500
Jon. 1 To Balance bid 68,750 D 2011
By Depreciation Ale
-- 61,25 0
-
ec.
31
- 68,750 " By Balance c/d 68,75 0
-=
2012 10,00 0
61 ,250 2012
Jan. 1 To Balance bid July 1 By Bank Ale 2,500
60,00()
July 1 To Bank Ale July 1 By Depreciation Ale 27,50 0
" By Profit & Loss Ale 5,500
Dec. 31 By Depreciation Ale
(f 2,500 + ~ 3,000 ) 75,75 0
~
" By Balance cld 1,21 ,250
1,21 ,25o
===:::::::;
2013 2013 11,36 3
To Balance bid
1s,1s0
Dec.31 By Depreciation Ale
Jan. 1
(15% on f 75,750) 64,38 7
fi " By Balance c/d
75,75 0
2014
-
75,750
64,387
2014
By Depreciation Ale
9,658
54,72 9
Jan. 1 To Balance b/d Dec. 31
" By Balance 64,38 7
64,387
2015 8,209
2015
54,729 By Depreciation Ale 46,52 0
Jan. 1 To Balance b/d Dec. 31
" By Balance c/d
54,72 9
54,729
which depreciates its mac hine ry@
ILLU STR ATI ON 8. (From DBM to SLM) P. Ltd. to straight line meth.od, the rate
10% p.a. onwritten down value desires to change the basis
st December, 2015 to be effective from 1st
remaining the same . The decision is taken on 31
r
(
I
January, 2013.
On 1st January, 2015 the balance in the machinery
On 1st July, 2015 a part of machinery purchased
sold for < 1,35,000 . On the same date a new
account is <' 29,16,000.
on 1st January, 2013 for f 2,40 ,000 was
machine is purchased for < 4,50,000 and
installed at a cost of< 24,000.
I Prepare Machinery Account for 2015.
I
SOL UTIO N
MACHINERY ACCOUNT r
( 2015 1,35,000
2015
29,16,000 July 1 By Bank Ale 9,720
Jan. 1 To Balance b/d n n
Depreciation Ale
" 49,68 0
July 1 To Bank Ale P. & L. Ale
4,74,000 " " "
(< 4,50,000 +f 24,000) (Loss on sale of
r
i
Machine) (1)
Dec. 31 By P. & L. Ale
(Additional Depr eciat ion
to be charged (3)
33,60 0
3,59,700
" " By Depreciation Ale (4)
II n II
Balance c/d 28,02 ,300
33,90 ,000
33,90,000
~11/~2- ~18~--- --------- ---- DEPRECIA110N ACCOUNTING '\
- ~ \i\.',
Working Notes : h· Id
1 Calculation of toss on mac ,ne so
( ) C t of Machine on 1-1-2013 2,40,000
Les~~ Depreciation @ 10% for 2013 24,000
W.D.V. on 1-1-2014 2,16,000
Less : Depreciation @ 10% for 2014 21,600
w.D.V. on 1-1-2015 1,94,400
Less : Depreciation @ 10% for 1/2 year 9,720
W.D.V. on 1-7-2015 1,84,680
Less : Amount realised from the sale 1,35,000
Loss of sale of machine 49,680
(2) Calculation of Book Value of Unsold Machinery on _1_
1 2013 <
W.D.V. on 1-1-2015 29,16,000
Less: W.D.V. of machine sold during 2015 1,94,400
27,21,600
Add: Depreciation for 2014 ( !~ <
x 27,21,600) 3,02,400
30,24,000
Add: Depreciation for 2013 ( !~ <
x ~0,24,ooo) 3,36,000
Book value of unsold machinery on 1-1-2013
33,60,000
(3) Calculation of Additional Depreciation because of Change in Method
Depreciation to be charged under new method (i.e. , straight line <
method for 2013 and 2014) (
1
1 0 x <33,60,000 x 2) g 6,72,000
Less : Depreciation already charged under the old method
(i.e., W.D. Value method) \
<
2013 3,36,000
2014 3,02,400
6,38,400
I· Addition.ii Depreciation to be charged 33,600
I
I
(4) Depreciation to be charged for 2015 <
Depreciation on <33,60,000 @ 10% for 2015 3,36,000
Depreciation on <4,74,000 @ 10% for half year 23,700
3,59,700
111111111111111111111111111111111111111111111111111111111111111111111111111111 Questions 11111111111111111111111111111111111111111111111111111111111111111111111111111111
SHORT ANSWER TYPE
1. (a) Specify causes of depreciation.
(b) What do you mean by physical deterioration ?
2. What do you understand by depletion ?
3. What is obsolescence ?
OR
Define Depreciation, Depletion, Fluctuation, Obsolescence and Amortisation.
4. Write four features of depreciation.
