Question

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.

Answer 1

Books of Bajrang Marbles
(a)
Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2000				2001
Apr.01	Bank		3,00,000	Mar.31	Depreciation		28,000
					Balance c/d		2,72,000
			3,00,000				3,00,000
2001				2002
Apr.01	Balance b/d		2,72,000	Mar.31	Depreciation		28,000
				Mar.31	Balance c/d		2,44,000
			2,72,000				2,72,000
2002				2003
Apr.01	Balance b/d		2,44,000	Mar.31	Depreciation		28,000
				Mar.31	Balance c/d		2,16,000
			2,44,000				2,44,000
2003				2004
Apr.01	Balance b/d		2,16,000	Mar.31	Depreciation		28,000
				Mar.31	Balance c/d		1,88,000
			2,16,000				2,16,000

Note: As per solution, the closing balance of machinery account at the end of fourth year is Rs 1,88,000; whereas, the answer given in the book is Rs 1,28,000

However, if we would have taken purchase price of machine Rs 1,80,000 instead of Rs 2,80,000 then the closing balance would have been be Rs 1,28,000

Working notes: Calculation of annual depreciation

Depreciation (p.a.)	=	(Original cost – Scrap Value )
		Estimated Life of Asset (years)
	=	(2,80,000 + 10,000 + 10,000 – 20,000)
		10
	=	Rs 28,000 per annum

Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Mar.31	Machinery		28,000	Mar.31	Profit and Loss		28,000
			28,000				28,000
2002				2002
Mar.31	Machinery		28,000	Mar.31	Profit and Loss		28,000
			28,000				28,000
2003				2003
Mar.31	Machinery		28,000	Mar.31	Profit and Loss		28,000
			28,000				28,000
2004				2004
Mar.31	Machinery		28,000	Mar.31	Profit and Loss		28,000
			28,000				28,000

(b)

Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2000				2001
Apr.01	Bank		3,00,000	Mar.31	Balance c/d		3,00,000
			3,00,000				3,00,000
2001				2002
Apr.01	Balance b/d		3,00,000	Mar.31	Balance c/d		3,00,000
			3,00,000				3,00,000
2002				2003
Apr.01	Balance b/d		3,00,000	Mar.31	Balance c/d		3,00,000
			3,00,000				3,00,000
2003				2004
Apr.01	Balance b/d		3,00,000	Mar.31	Balance c/d		3,00,000
			3,00,000				3,00,000
Provision for Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Mar.31	Balance c/d		28,000	Mar.31	Depreciation		28,000
			28,000				28,000
				2001
				Apr.01	Balance b/d		28,000
2002				2002
Mar.31	Balance c/d		56,000	Mar.31	Depreciation		28,000
			56,000				56,000
				2002
				Apr.01	Balance b/d		56,000
2003				2003
Mar.31	Balance c/d		84,000	Mar.31	Depreciation		28,000
			84,000				84,000
				2003
				Apr.01	Balance b/d		84,000
2004				2004
Mar.31	Balance c/d		1,12,000	Mar.31	Depreciation		28,000
			1,12,000				1,12,000

Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Mar.31	Provision for Depreciation		28,000	Mar.31	Profit and Loss		28,000
			28,000				28,000
2002				2002
Mar.31	Provision for Depreciation		28,000	Mar.31	Profit and Loss		28,000
			28,000				28,000
2003				2003
Mar.31	Provision for Depreciation		28,000	Mar.31	Profit and Loss		28,000
			28,000				28,000
2004				2004
Mar.31	Provision for Depreciation		28,000	Mar.31	Profit and Loss		28,000
			28,000				28,000

Note: As per solution, the closing balance of Provision for Depreciation Account at the end of fourth year is Rs 1,12,000; whereas, the answer given in the book is Rs 72,000

However, if we would have taken purchase price of machine Rs 1,80,000 instead of Rs 2,80,000 then the closing balance would have been be Rs 72,000