Question

Binny Textiles Ltd. which depreciates its machinery at 20% p.a. on diminishing balance method, purchased a machine for ₹ 6,00,000 on 1st October, 2010. It closes its books on 31st March every year. On 1st January, 2012, it purchased another machine for ₹ 1,50,000. On 1st December, 2012, one-third of the machinery purchased on 1st October, 2010 was sold for ₹ 80,000.
You are required to prepare Machinery A/c and Provision for Depreciation A/c for the relevant years.

Answer 1

Machinery Account
Dr.				Cr.
Date	Particulars		Amount (Rs)	Date	Particulars		Amount (Rs)
2010				2011
Oct. 01	Bank A/c			Mar. 31	Balance c/d
	M1	2,00,000			M1	2,00,000
	M2	4,00,000	6,00,000		M2	4,00,000	6,00,000
			6,00,000				6,00,000
2011				2012
Apr. 01	Balance b/d			Mar. 31	Balance c/d
	M1	2,00,000			M1	2,00,000
	M2	4,00,000	6,00,000		M2	4,00,000
2012					M3	1,50,000	7,50,000
Dec. 01	Bank A/c (M3)		1,50,000
			7,50,000				7,50,000
2012				2012
Apr. 01	Balance b/d			Dec. 01	Provision for Depreciation A/c		75,200
	M1	2,00,000			Bank A/c (Sale of M1)		80,000
	M2	4,00,000			Profit and Loss A/c (Loss on Sale of M1)		44,800
	M3	1,50,000	7,50,000	2013
				Mar. 31	Balance c/d
					M2	4,00,000
					M3	1,50,000	5,50,000
			7,50,000				7,50,000

Provision for Depreciation Account
Dr.			Cr.
Date	Particulars	Amount (Rs)	Date	Particulars		Amount (Rs)
2011			2011
Mar. 31	Balance c/d	60,000	Mar. 31	Depreciation A/c
				M1 (for 6 months)	20,000
				M2 (for 6 months)	40,000	60,000
		60,000				60,000
2012			2011
Mar. 31	Balance c/d	1,75,500	Apr. 01	Balance b/d		60,000
			2012
			Mar. 31	Depreciation A/c
				M1	36,000
				M2	72,000
				M3 (for 3 months)	7,500	1,15,500
		1,75,500				1,75,500
2012			2012
Dec. 01	Machinery A/c (M1) (20,000 + 36,000 + 19,200)	75,200	Apr. 01	Balance b/d		1,75,500
2013			Dec. 01	Depreciation A/c (M1) (for 8 months)		19,200
Mar. 31	Balance c/d	2,05,600	2013
			Mar. 31	Depreciation A/c
				M2	57,600
				M3	28,500	86,100
		2,80,800				2,80,800

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

Particulars	Amount
Value of Machinery on Oct. 01, 2010	2,00,000
Less: Depreciation for 6 months	20,000
Value of Machinery on Apr. 01, 2011	1,80,000
Less: Depreciation	36,000
Value of Machinery on Apr. 01, 2012	1,44,000
Less: Depreciation for 8 months	19,200
Value of Machinery on Dec. 01, 2012	1,24,800
Less: Sale Value	80,000
Loss on Sale	44,800

Note: In order to make easy calculation, machinery purchased on Apr. 01, 2012 has been divided into two parts i.e. M1 and M2.

Thus, M1: Rs 2,00,000 (1/3^rd value of machinery, sold for Rs 80,000 on Dec. 01, 2012)

M2: Rs 4,00,000 (2/3^rd value of machinery)