On 1st April, 2015, Star Ltd. purchased 5 machines for ₹ 60,000 each. On 1st April, 2017, one of the machine was sold at a loss of ₹ 8,000. On 1st July, 2018, second machine was sold at a loss of ₹ 12,500. A new machine was purchased for ₹ 1,00,000 on 1st October, 2018.
Prepare Machinery Account for 4 years, assuming accounts are closed on 31st March each year and depreciation is charged @ 10% per annum as per Straight Line Method.

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Solution

Dr.

Machinery A/c

Cr.

Date

Particulars

Amount

(₹)

Date

Particulars

Amount

(₹)

2015

2016

April 01 To Cash/Bank A/c (60,000 × 5)
3,00,000
March 31 By Depreciation A/c (3,00,000 × 10/100)
30,000

March 31 By balance c/d
2,70,000

3,00,000

3,00,000

2016

2017

April 01 To balance b/d
2,70,000
March 31 By Depreciation A/c (3,00,000 × 10/100)
30,000

March 31 By balance c/d
2,40,000

2,70,000

2,70,000

2017

2017

April 01 To balance b/d
2,40,000
April 01 By Bank A/c (WN1)
40,000

April 01 By Profit & Loss A/c (Loss on sale)
8,000

2018

March 31 By Depreciation A/c (2,40,000 × 10/100)
24,000

(On remaining machinery)

March 31 By balance c/d
1,68,000

2,40,000

2,40,000

2018

2018

April 01 To balance c/d
1,68,000
July 1 By Depreciation A/c (6,000 × 3/12)
1,500

Oct.01 To Cash/Bank A/c
1,00,000
July 1 By Bank A/c (WN2)
28,000

July 1 By Profit & Loss A/c (Loss on Sale)
12,500

2019

March 31 By Depreciation A/c (On remaining
23,000

Machinery)

[(1,80,000 × 10/100) +

(1,00,000 × 10/100 × 6/12)]

March 31 By balance c/d
2,03,000

2,68,000

2,68,000

Working Notes:

1) Calculation of Sale proceeds from Machinery sold on 1^st April, 2017

Book Value of the Machine as on 1^st April, 2017 = (Total opening balance of Machinery on this date/5)

= ₹ (2,40,000/5) = ₹ 48,000

Loss on Sale of Machinery = ₹ 8,000

Sale proceeds from the Machinery = Book Value of the Machine as on 1^st April, 2017 – Loss on Sale

= ₹ (48,000 – 8,000) = ₹ 40,000

2) Calculation of Sale proceeds from Machinery sold on 1^st July 2018

Book Value of the Machine as on 1^st July, 2018 = [(Total opening balance of Machinery on this date/4) – Depreciation]

= ₹ [(1,68,000/4) – 1,500] = ₹ 40,500

Loss on Sale of Machinery = ₹ 12,500

Sale proceeds from the Machinery = Book Value of the Machine as on 1^st July, 2018 – Loss on Sale

= ₹ (40,500 – 12,500) = ₹ 28,000

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Dr.	Machinery A/c						Cr.
Date		Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2015				2016
April 01		To Cash/Bank A/c (60,000 × 5)	3,00,000	March 31	By Depreciation A/c (3,00,000 × 10/100)	30,000
				March 31	By balance c/d	2,70,000

			3,00,000			3,00,000
2016				2017
April 01		To balance b/d	2,70,000	March 31	By Depreciation A/c (3,00,000 × 10/100)	30,000
				March 31	By balance c/d	2,40,000

			2,70,000			2,70,000
2017				2017
April 01		To balance b/d	2,40,000	April 01	By Bank A/c (WN1)	40,000
				April 01	By Profit & Loss A/c (Loss on sale)	8,000
				2018
				March 31	By Depreciation A/c (2,40,000 × 10/100)	24,000
					(On remaining machinery)
				March 31	By balance c/d	1,68,000

			2,40,000			2,40,000
2018				2018
April 01		To balance c/d	1,68,000	July 1	By Depreciation A/c (6,000 × 3/12)	1,500
Oct.01		To Cash/Bank A/c	1,00,000	July 1	By Bank A/c (WN2)	28,000
				July 1	By Profit & Loss A/c (Loss on Sale)	12,500
				2019
				March 31	By Depreciation A/c (On remaining	23,000
					Machinery)
					[(1,80,000 × 10/100) +
					(1,00,000 × 10/100 × 6/12)]
				March 31	By balance c/d	2,03,000

			2,68,000			2,68,000

1) Calculation of Sale proceeds from Machinery sold on 1^st April, 2017
Book Value of the Machine as on 1^st April, 2017	=	(Total opening balance of Machinery on this date/5)
	=	₹ (2,40,000/5) = ₹ 48,000
Loss on Sale of Machinery	=	₹ 8,000
Sale proceeds from the Machinery	=	Book Value of the Machine as on 1^st April, 2017 – Loss on Sale
	=	₹ (48,000 – 8,000) = ₹ 40,000

2) Calculation of Sale proceeds from Machinery sold on 1^st July 2018
Book Value of the Machine as on 1^st July, 2018	=	[(Total opening balance of Machinery on this date/4) – Depreciation]
	=	₹ [(1,68,000/4) – 1,500] = ₹ 40,500
Loss on Sale of Machinery	=	₹ 12,500
Sale proceeds from the Machinery	=	Book Value of the Machine as on 1^st July, 2018 – Loss on Sale
	=	₹ (40,500 – 12,500) = ₹ 28,000