Question

On 1st April, 2015, X Ltd. purchased a machine costing ₹ 4,00,000 and spent ₹ 50,000 on its installation. The estimated life of the machinery is 10 years, after which its residual value will be ₹ 50,000 only. Find the amount of annual depreciation according to the Fixed Instalment Method and prepare Machinery Account for t he first three years. The books are closed on 31st March every year.

Answer 1

Book of X Ltd. Machinery Account
Dr.									Cr.
Date		Particulars	J.F.	Amount (Rs)	Date	Particulars	J.F.	Amount (Rs)
2015					2016
April 01		Bank		4,00,000	Mar.31	Depreciation		40,000
April 01		Bank (Erection Expense)		50,000		Balance c/d		4,10,000
				4,50,000				4,50,000
2016					2017
April 01		Balance b/d		4,10,000	Mar.31	Depreciation		40,000
						Balance c/d		3,70,000
				4,10,000				4,10,000
2017					2018
April 01		Balance b/d		3,70,000	Mar.31	Depreciation		40,000
						Balance c/d		3,30,000
				3,70,000				3,70,000

Calculation of Depreciation:

$$\begin{gathered} \mathrm{Depreciation}\mathrm{p}.\mathrm{a}.=\frac{4,00,000+50,000-50,000(\mathrm{Scrap}\mathrm{Value})}{10\mathrm{years}} \\ =\mathrm{Rs}40,000\mathrm{p}.\mathrm{a}. \end{gathered}$$