Question

A company whose accounting year is the calendar year, purchased on 1st April, 2014 machinery costing Rs. 30,000. On 1st June, 2016 one third of the machinery which was installed on 1st April, 2014 became obsolete and was sold for Rs. 3,000. Show how the machine account would appear in the books of the company, it being given that machinery was depreciated by fixed installment at 10% per annum.

Answer 1

$\begin{array}{cccccccc}\text{Dr}& & & & \text{Machinery Account}& & & \text{Cr}\end{array}$

$\begin{array}{cccccccccc}\text{Date}& \text{Particlars}& & \text{JF}& \text{Amt (Rs)}& \text{Date}& \text{Particulars}& & \text{JF}& \text{Amt (Rs)}\\ 2014& & & & & 2014& & & & \\ \text{Apr 1}& \text{To Bank A/c (W.N.1)}& & & & \text{Dec 31}& \text{By Depreciation A/c (W.N.2)}& & & \\ & \text{A}& 20,000& & & & \text{A}& 1,500& & \\ & \text{B}& \underset{–}{10,000}& & 30,000& & \text{B}& \underset{–}{750}& & 2,250\\ & & & & & \text{Dec 31}& \text{By Balance c/d}& & & \\ & & & & & & \text{A}& 18,500& & \\ & & & & & & \text{B}& \underset{–}{9,250}& & 27,750\\ & & & & \overline{\underset{–}{\underset{–}{30,000}}}& & & & & \overline{\underset{–}{\underset{–}{30,000}}}\\ 2015& & & & & 2015& & & & \\ \text{Jan 1}& \text{To Balance b/d}& & & & \text{Dec 31}& \text{By Depreciation A/c}& & & \\ & \text{A}& 18,500& & & & \text{A}& 2,000& & \\ & \text{B}& \underset{–}{9,250}& & 27,750& & \text{B}& \underset{–}{1,000}& & 3,000\\ & & & & & \text{Dec 31}& \text{By Balance c/d}& & & \\ & & & & & & \text{A}& 16,500& & \\ & & & & & & \text{B}& \underset{–}{8,250}& & 24,750\\ & & & & \overline{\underset{–}{\underset{–}{27,750}}}& & & & & \overline{\underset{–}{\underset{–}{27,750}}}\\ 2016& & & & & 2016& & & & \\ \text{Jan 1}& \text{To Balance b/d}& & & & \text{June 1}& \text{By Bank A/c}& & & 3,000\\ & \text{A}& 16,500& & & \text{June 1}& \text{By Depreciation A/c (W.N.3)}& & & 417\\ & \text{B}& \underset{–}{8,250}& & 24,750& \text{June 1}& \text{By Profit and Loss A/c}& & & 4,833\\ & & & & & & \text{(W.N.4)}& & & \\ & & & & & \text{Dec 31}& \text{By Depreciation A/c (A)}& & & 2,000\\ & & & & & \text{Dec 31}& \text{Balance c/d (A)}& & & 14,500\\ & & & & \overline{\underset{–}{\underset{–}{24,750}}}& & & & & \overline{\underset{–}{\underset{–}{24,750}}}\end{array}$

Working Note:

W.N. 1

Cost of machine = Rs. 30,000 Part of machinery sold = $\frac{1}{3}rd$
$\therefore$ Cost of part of machinery sold = 30,000 $\times \frac{1}{3}\text{Rs.}$ 10,000

So, machinery has been split in two parts

W.N. 2

Depreciation on parts of machinery for a period of nine months, i.e. from 1st April to 31 December.

Depreciation on 'A' part = 20,000$\times \frac{10}{100}\times \frac{9}{12}=\text{Rs.}$ 1,500.

Depreciation on 'B' part = 10,000 $\times \frac{10}{100}\times \frac{9}{12}=\text{Rs.}$ 750.

W.N. 3

Depreciation on part add for a period of 5 months i.e from 1st January to 31st May.
= 10,000 $\times \frac{10}{100}\times \frac{5}{12}=\text{Rs.}$ 417

W.N. 4

\($$\begin{array}{cc}\text{Book value of asset as on 1st January, 2016}& 8,250\\ \text{(-) Depreciation upto the date of sale}& 417\\ \text{Book value on the date of sale}& \overline{7,833}\\ \text{(-) Sale proceeds}& 3,000\\ \text{Loss on sale of asset transferred to profit and loss account}& \overline{\underset{–}{4,833}}\end{array}$$\