Question

On 1st April 2014, X Ltd purchased a machinery for Rs.12,00,000. On 1st October 2016 a part of the machinery purchased on 1st April 2014 for Rs. 80,000 was sold for Rs. 45,000 and a new machinery at the cost of Rs. 1,58,000 was purchased and installed on the same date. The company has adopted the method of providing 10 % per annum depreciation on the diminishing balance of the machinery.

Show the necessary ledger accounts assuming that provision for depreciation account and machinery disposal account is maintained. The accounting year ends on 31st March.

Answer 1

$\begin{array}{cccccccc}\text{Dr}& & & & \text{Machinery Account(At original cost)}& & & \text{Cr}\end{array}\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}\\ \text{2014}& & & & \text{2015}& & & \\ \text{Apr 1}& \text{Bank A/c}& & & \text{Mar 31}& \text{Balance c/d}& & \\ & \text{A}11,20,000& & & & \text{A}11,20,000& & \\ & \text{B}\underset{–}{80,000}& & 12,00,000& & \text{B}\underset{–}{80,000}& & 12,00,000\\ & & & \overline{\underset{–}{\underset{–}{12,00,000}}}& & & & \overline{\underset{–}{\underset{–}{12,00,000}}}\\ \text{2015}& & & & \text{2016}& & & \\ \text{Apr 1}& \text{Balance b/d}& & & \text{Mar 31}& \text{Balance c/d}& & \\ & \text{A}11,20,000& & & & \text{A}11,20,000& & \\ & \text{B}\underset{–}{80,000}& & 12,00,000& & \text{B}\underset{–}{80,000}& & 12,00,000\\ & & & \overline{\underset{–}{\underset{–}{12,00,000}}}& & & & \overline{\underset{–}{\underset{–}{12,00,000}}}\\ \text{2016}& & & & \text{2016}& & & \\ \text{Apr 1}& \text{Balance b/d}& & & \text{Oct 31}& \text{Machinery Disposal A/c}& & 80,000\\ & \text{A}11,20,000& & & & & & \\ & \text{B}\underset{–}{80,000}& & 12,00,000& & & & \\ & & & & & & & \\ \text{2016}& & & & \text{2017}& & & \\ \text{Oct 1}& \text{Bank A/c(c)}& & 1,58,000& \text{Mar 31}& \text{Balance c/d}& & \\ & & & & & \text{A}11,20,000& & \\ & & & & & \text{C}1,58,000& & 12,78,000\\ & & & & & & & \\ & & & \overline{\underset{–}{\underset{–}{13,58,000}}}& & & & \overline{\underset{–}{\underset{–}{13,58,000}}}\end{array}$

$\begin{array}{cccccccc}\text{Dr}& & & & \text{Provision for Depreciation Account}& & & \text{Cr}\end{array}\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}\\ \text{2015}& & & & \text{2015}& & & \\ \text{Mar 31}& \text{Balance c/d}& & & \text{Mar 31}& \text{Depreciation A/c}& & \\ & \text{A}1,12,000& & & & \text{A}1,12,000& & \\ & \text{B}\underset{–}{8,000}& & 1,20,000& & \text{B}\underset{–}{80,000}& & 1,20,000\\ & & & \overline{\underset{–}{\underset{–}{1,20,000}}}& & & & \overline{\underset{–}{\underset{–}{1,20,000}}}\\ \text{2016}& & & & \text{2015}& & & \\ \text{Mar 31}& \text{Balance c/d}& & & \text{Apr1}& \text{Balance b/d}& & \\ & \text{A}2,12,800& & & & \text{A}1,12,000& & \\ & \text{B}\underset{–}{1,520}& & 2,28,000& & \text{B}\underset{–}{8,000}& & 1,20,000\\ & & & & 2016& & & \\ & & & & \text{Mar 31}& \text{Depreciation A/c}& & \\ & & & & & \text{A}1,00,800& & \\ & & & & & \text{B}\underset{–}{7,200}& & \\ & & & & & & & 1,08,000\\ & & & \underset{–}{\overline{\underset{–}{2,28,000}}}& & & & \underset{–}{\overline{\underset{–}{2,28,000}}}\\ \text{2016}& & & & \text{2016}& & & \\ \text{Oct 1}& \text{Machinery Disposal A/c(B)}& & & \text{Apr 1}& \text{Balance b/d}& & \\ & (15,200+3,240)& & 18,440& & \text{A}2,12,800& & \\ & & & & & \text{B}\underset{–}{15,200}& & 2,28,000\\ 2017& & & & \text{Oct 1}& \text{Depreciation A/c (B)(W.N)}& & 3,240\\ \text{Mar 31}& \text{Balance c/d}& & & 2017& & & \\ & \text{A}3,03,520& & & \text{Mar 31}& \text{Depreciation A/c}& & \\ & \text{C}\underset{–}{7,900}& & & & \text{A}90,720& & \\ & & & 3,11,420& & \text{C}\underset{–}{7,900}& & 98,620\\ & & & \underset{–}{\overline{\underset{–}{3,29,860}}}& & & & \underset{–}{\overline{\underset{–}{3,29,860}}}\end{array}$

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

$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}\\ \text{2016}& & & & \text{2016}& & & \\ \text{Oct 1}& \text{Machinery A/c}& & 80,000& \text{Oct 1}& \text{Provision for}& & 18,440\\ & & & & & \text{Depreciation A/c}& & \\ & & & & & \text{Bank A/c}& & 45,000\\ & & & & & \text{Profit and Loss A/c}& & \\ & & & & & \text{(Loss on sale) (WN 1)}& & 16,560\\ & & & \overline{\underset{–}{\underset{–}{80,000}}}& & & & \overline{\underset{–}{\underset{–}{80,000}}}\end{array}$

Working Note:

$\begin{array}{ccc}& & \\ \left(i\right)& \text{Calculation of Profit/Loss on Sale of Machinery}& 80,000\\ & \text{Original cost as on 1st April, 2014}& 8,000\\ & \text{(-) Depreciation @ 10 \% per annum for 2014-15}& \overline{72,000}\\ & \text{Book value as on 1st April, 2015}& \underset{–}{7,200}\\ & \text{Book value as on 1st April, 2016}& 64,800\\ & \text{(-) Depreciation @ 10 \% per annum upto date of sale}(Rs.64,800\times \frac{10}{100}\times \frac{6}{12})& \underset{–}{3240}\\ & \text{Book value as on 1st October, 2016}& 61,560\\ & \text{(-) Sale proceeds}& 45,000\\ & \text{Loss on sale of machinery}& Rs.\overline{\underset{–}{\underset{–}{16,560}}}\end{array}$