Question

On 1st January, 2013 A Ltd, company purchased machinery for Rs. 20,00,000. Depreciation is provided at15% per annum on diminishing balance method. On 1st March, 2015 $\frac{1}{4}$ of machinery was damaged by fire and Rs. 40,000 machinery were received from the insurance company in full settlement. On 1st September, 2015 another machinery was purchased by the company for Rs.15,00,000. Write up the machinery account from 2015 to 2016. Books are closed on 31st December, every year.

Answer 1

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

$\begin{array}{cccccccccc}\text{Date}& \text{Particulars}& & \text{JF}& \text{Amt. (Rs)}& \text{Date}& \text{Particulars}& & \text{JF}& \text{Amt. (Rs)}\\ 2015& & & & & 2015& & & & \\ \text{Jan 1}& \text{Balance b/d (W.N.1)}& & & & \text{Mar 1}& \text{Bank A/c (Insurance )}& & & 40,000\\ & \text{A}& 10,83,750& & & & & & & \\ & \text{B}& \underset{–}{3,61,250}& & 14,45,000& & \text{Depreciation A/c (B)(W.N.2)}& & & 9,031\\ \text{Sep 1}& \text{Bank A/c (C)}& & & 15,00,000& & \text{Profit and loss A/c}& & & 3,12,219\\ & & & & & \text{Dec 31}& \text{Depreciation A/c}& & & \\ & & & & & & \text{A}& 1,62,562& & \\ & & & & & & \text{C}& \underset{–}{75,000}& & 2,37,562\\ & & & & & \text{Dec 31}& \text{Balance c/d}& & & \\ & & & & & & \text{A}& 9,21,188& & \\ & & & & & & \text{C}& \underset{–}{14,25,000}& & 23,46,188\\ & & & & \overline{\underset{–}{\underset{–}{29,45,000}}}& & & & & \overline{\underset{–}{\underset{–}{29,45,000}}}\\ 2016& & & & & 2016& & & & \\ \text{Jan 1}& \text{Balance b/d}& & & & \text{Dec 31}& \text{Depreciation A/c}& & & \\ & \text{A}& 9,21,188& & & & \text{A}& 1,38,178& & \\ & \text{C}& \underset{–}{14,25,000}& & & & \text{C}& \underset{–}{2,13,750}& & 3,51,928\\ & & & & & \text{Dec 31}& \text{Balance c/d}& & & \\ & & & & & & \text{A}& 7,83,010& & \\ & & & & & & \text{C}& \underset{–}{12,11,250}& & 19,94,260\\ & & & & \overline{\underset{–}{\underset{–}{23,46,188}}}& & & & & \overline{\underset{–}{\underset{–}{23,46,188}}}\end{array}$

Working Notes
W.N. 1

$\begin{array}{ccc}\text{Cost of Machinery purchased on}& & \\ \text{1st January, 2013}& & =\text{Rs.20,00,000}\\ \text{One fourth part of Machinery}& & =\text{Rs. 5,00,000}\\ \text{So, the machinery is split into two parts;}& \text{Part A}& \text{Part B}\\ & 15,00,000& \text{Rs.5,00,000}\\ \text{(-) Dep. for 2013}& 2,25,000& \text{Rs.75,000}\\ \text{WDv}& \overline{12,75,000}& \overline{4,25,000}\\ \text{(-) Dep. for 2014}& 1,91,250& 63,750\\ \text{WDv}& \overline{\underset{–}{10,83,750}}& \overline{\underset{–}{3,61,250}}\end{array}$
W.N.2.
Depreciation on Part B in 2015 = $3,61,250\times \frac{15}{100}\times \frac{2}{12}=Rs.9,031$.