A Company, which closes its books on 31st March every year, purchased on 1st July, 2010, machinery costing ₹ 30,000. It purchased further machinery on 1st January, 2011, costing ₹ 20,000 and on 1st October, 2011, costing ₹ 10,000. On 1st April, 2012, one-third of the machinery installed on 1st July, 2010, became obsolete and was sold for ₹ 3,000.
Show how the machinery account would appear in the books of the Company, it being given that machinery was depreciated by Diminishing Balance Method at 10% per annum. What would be the balance of Machinery Account on 1st April, 2013?

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Solution

Machinery Account

Dr. Cr.

Date Particulars Amount (Rs) Date Particulars Amount (Rs)

2010 2011

July 01 Bank A/c Mar. 31 Depreciation A/c

M1
10,000
M1 (for 9 months)
750

M2
20,000 30,000
M2 (for 9 months)
1,500

2011
M3 (for 3 months)
500 2,750

Jan. 01 Bank A/c (M3) 20,000 Mar. 31 Balance c/d

M1
9,250

M2
18,500

M3
19,500 47,250

50,000 50,000

2011 2012

Apr. 01 Balance b/d Mar. 31 Depreciation A/c

M1
9,250
M1
925

M2
18,500
M2
1,850

M3
19,500 47,250
M3
1,950

Oct. 01 Bank A/c (M4) 10,000
M4 (for 6 months)
500 5,225

Mar. 31 Balance c/d

M1
8,325

M2
16,650

M3
17,550

M4
9,500 52,025

57,250 57,250

2012 2012

Apr. 01 Balance b/d Apr. 01 Bank A/c (Sale of M1) 3,000

M1
8,325 Profit and Loss A/c (Loss on Sale of M1) 5,325

M2
16,650 2013

M3
17,550 Mar. 31 Depreciation A/c

M4
9,500 52,025
M2
1,665

M3
1,755

M4
950 4,370

Mar. 31 Balance c/d

M2
14,985

M3
15,795

M4
8,550 39,330

52,025 52,025

Working Note: Calculation of Profit & Loss on Sale of M1

Particulars Amount

Value of Machinery on Apr. 01, 2012 8,325

Less: Sale Value
3,000

Loss on Sale 5,325

Note: In order to make easy calculation, machinery purchased on July 01, 2010 has been divided into two parts i.e. M1 and M2.

Thus, M1: 1/3rd value i.e Rs 10,000 (sold for Rs 3,000)

M2: 2/3rd value i.e. Rs Rs 40,000 (remained in the business)

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Machinery Account
Dr.					Cr.
Date	Particulars		Amount (Rs)	Date		Particulars		Amount (Rs)
2010				2011
July 01	Bank A/c			Mar. 31		Depreciation A/c
	M1	10,000				M1 (for 9 months)	750
	M2	20,000	30,000			M2 (for 9 months)	1,500
2011						M3 (for 3 months)	500	2,750
Jan. 01	Bank A/c (M3)		20,000	Mar. 31		Balance c/d
						M1	9,250
						M2	18,500
						M3	19,500	47,250
			50,000					50,000
2011				2012
Apr. 01	Balance b/d			Mar. 31		Depreciation A/c
	M1	9,250				M1	925
	M2	18,500				M2	1,850
	M3	19,500	47,250			M3	1,950
Oct. 01	Bank A/c (M4)		10,000			M4 (for 6 months)	500	5,225
				Mar. 31		Balance c/d
						M1	8,325
						M2	16,650
						M3	17,550
						M4	9,500	52,025
			57,250					57,250
2012				2012
Apr. 01	Balance b/d			Apr. 01		Bank A/c (Sale of M1)		3,000
	M1	8,325				Profit and Loss A/c (Loss on Sale of M1)		5,325
	M2	16,650		2013
	M3	17,550		Mar. 31		Depreciation A/c
	M4	9,500	52,025			M2	1,665
						M3	1,755
						M4	950	4,370
				Mar. 31		Balance c/d
						M2	14,985
						M3	15,795
						M4	8,550	39,330
			52,025					52,025

Particulars	Amount
Value of Machinery on Apr. 01, 2012	8,325
Less: Sale Value	3,000
Loss on Sale	5,325