Question

On 1st April, 2013, a merchant purchased a furniture costing Rs. 55,000. It is estimated that its life is 10 years at the end of which it will be sold for Rs. 5,000. Additions are made on 1st April, 2014 and 1st April, 2016 to the value of Rs. 9,500 and Rs. 8,800 (Residual values Rs.500 and Rs. 400 respectively). Show the furniture account for the first four years, if depreciation is written off according to the straight line method, and the merchant closes his books on 31st March, every year, assuming that the additions made to the furniture are an integral part of the furniture and will lose their utility with the expiration of the useful life of the original furniture.

Answer 1

$\begin{array}{cccccccc}\text{Dr}& & & & \text{(Furniture Account)}& & & \text{Cr}\end{array}\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}\\ 2013& & & 55,000& 2014& & & \\ \text{Apr 1}& \text{Bank A/c}& & & \text{Mar 31}& \text{Depreciation A/c}& & 5,000\\ & & & & & \text{Balance c/d}& & 50,000\\ & & & \overline{\underset{–}{\underset{–}{55,000}}}& & & & \overline{\underset{–}{\underset{–}{55,000}}}\\ 2014& & & & 2015& & & \\ \text{Apr 1}& \text{Balance b/d}& & 50,000& \text{Mar 31}& \text{Depreciation A/c}& & 6,000\\ \text{Apr 1}& \text{Bank A/c}& & 9,500& & (5,000+1,000)& & \\ & & & & & \text{Balance c/d}& & 53,500\\ & & & & & (45,000+8,500)& & \\ & & & & & & & \\ & & & \overline{\underset{–}{\underset{–}{59,500}}}& & & & \overline{\underset{–}{\underset{–}{59,500}}}\\ 2015& & & & 2016& & & \\ \text{Apr 1}& \text{Balance b/d}& & 53,500& \text{Mar 31}& \text{Depreciation A/c}& & 6,000\\ & & & & & (5,000+1,000)& & \\ & & & & & \text{Balance c/d}& & 47,500\\ & & & & & (40,000+7,500)& & \\ & & & & & & & \\ & & & \overline{\underset{–}{\underset{–}{53,500}}}& & & & \overline{\underset{–}{\underset{–}{53,500}}}\\ 2016& & & & 2017& & & \\ \text{Apr 1}& \text{Balance b/d}& & 47,500& \text{Mar 31}& \text{Depreciation A/c}& & 7,200\\ & \text{Bank A/c}& & 8,800& & (5,000+1,000+1200)& & \\ & & & & & \text{Balance c/d}& & 49,100\\ & & & & & (35,000+6,500+7,600)& & \\ & & & & & & & \\ & & & \overline{\underset{–}{\underset{–}{56,300}}}& & & & \overline{\underset{–}{\underset{–}{56,300}}}\end{array}$

Working Note

Depreciation charged on furniture purchased on 1st April, 2013 = $\frac{55,000-5,000}{10}$= Rs. 5,000

Depreciation charged on addition made on 1st April, 2014 = $\frac{9,500-500}{9\ast }$= Rs. 1,000

*The estimated life is taken as 9 years because one year have elapsed since the purchase of original furniture.

Depreciation charged on addition made on 1st April, 2016 =$\frac{8,800-400}{7\ast }$= 1200

*The estimated life is taken as 7 years because three years have elapsed since the purchase of original furniture.