Question

On 1st July, 2014 Ashok Ltd purchased a machine for Rs. 1,08,000 and spent Rs. 12,000 on its installation. At the time of purchase, it was estimated that the effective commerical life of the machine will be 12 years and after 12 year, its salvage value will be Rs. 12,000. Pass necessary journal entries and prepare machinery account and depreciation account in the books of Ashok Ltd for first 3 years, if depreciation is written-off according to straight line method. The accounts are closed on 31st December, every year.

Answer 1

$\begin{array}{ccccc}\text{Date}& \text{Particulars}& \text{LF}& \text{Amt (Dr)}& \text{Amt (Cr)}\\ 2014& & & & \\ \text{July 1}& \text{Machinery A/c}\text{Dr}& & 1,20,000& \\ & \text{To Bank A/c}& & & 1,20,000\\ & \text{(Machinery purchased for Rs. 1,08,000 Rs. 12,00 spent on}& & & \\ & \text{its installation)}& & & \\ & \underset{–}{}& & & \\ \text{Dec 31}& \text{Depreciation A/c}\text{Dr}& & 4500& \\ & \text{To Machinery A/c}& & & 4,500\\ & \text{(Depreciation charged to machinery account)}& & & \\ & \underset{–}{}& & & \\ \text{Dec 31}& \text{Profit and Loss A/c}\text{Dr}& & 4,500& \\ & \text{To Depreciation A/c}& & & 4,500\\ & \text{(Depreciation transferred to profit and loss account)}& & & \\ & \underset{–}{}& & & \\ 2015& & & & \\ \text{Dec 31}& \text{Depreciation A/c}\text{Dr}& & 9,000& \\ & \text{To Machinery A/c}& & & 9,000\\ & \text{(Depreciation charged to machinery account)}& & & \\ & \underset{–}{}& & & \\ \text{Dec 31}& \text{Profit and Loss A/c}\text{Dr}& & 9,000& \\ & \text{To Machinery A/c}& & & 9,000\\ & \text{(Depreciation transferred to profit and loss account)}& & & \\ & \underset{–}{}& & & \\ 2016& & & & \\ \text{Dec 31}& \text{Depreciation A/c}\text{Dr}& & 9,000& \\ & \text{To Machinery A/c}& & & 9,000\\ & \text{(Depreciation charged to machinery account)}& & & \\ & \underset{–}{}& & & \\ \text{Dec 31}& \text{Profit and Loss A/c}\text{Dr}& & 9,000& \\ & \text{To Machinery A/c}& & & 9,000\\ & \text{(Depreciation transferred profit and loss account)}& & & \\ & & & & \end{array}$

$\begin{array}{cccccccc}\text{Dr}& & & & \text{Machinery Account}& & & \text{Cr}\end{array}$
$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}\\ 2014& & & & 2014& & & \\ \text{Jul 1}& \text{Bank A/c}& & 1,20,000& \text{Dec 31}& \text{Depreciation A/c}& & 4,500\\ & & & & \text{Dec 31}& \text{Balance c/d}& & 1,15,000\\ & & & \overline{\underset{–}{\underset{–}{1,20,000}}}& & & & \overline{\underset{–}{\underset{–}{1,20,000}}}\\ 2015& & & & 2015& & & \\ \text{Jan 1}& \text{Balance b/d}& & 1,15,500& \text{Dec 31}& \text{Depreciation A/c}& & 9,000\\ & & & & \text{Dec 31}& \text{Balance c/d}& & 1,05,500\\ & & & \overline{\underset{–}{\underset{–}{1,15,500}}}& & & & \overline{\underset{–}{\underset{–}{1,15,500}}}\\ 2016& & & & 2016& & & \\ \text{Jan}& \text{Balance b/d}& & 1,06,500& \text{Dec 31}& \text{Depreciation A/c}& & 9,000\\ & & & & \text{Dec 31}& \text{Balance c/d}& & 97,500\\ 2017& & & \overline{\underset{–}{\underset{–}{1,06,500}}}& & & & \overline{\underset{–}{\underset{–}{1,06,500}}}\\ \text{Jan 1}& \text{Balance b/d}& & 97,500& & & & \end{array}$

$\begin{array}{cccccccc}\text{Dr}& & & & \text{Depreciation Account}& & & \text{Cr}\end{array}$
$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}\\ 2014& & & & 2014& & & \\ \text{Dec 31}& \text{Machinery A/c}& & 4,500& \text{Dec 31}& \text{Profit and Loss A/c}& & 4,500\\ & & & \overline{\underset{–}{\underset{–}{4,500}}}& & & & \overline{\underset{–}{\underset{–}{4,500}}}\\ 2015& & & & 2015& & & \\ \text{Dec 31}& \text{Machinery A/c}& & 9,000& \text{Dec 31}& \text{Profit and Loss A/c}& & 9,000\\ & & & \overline{\underset{–}{\underset{–}{9,000}}}& & & & \overline{\underset{–}{\underset{–}{9,000}}}\\ 2016& & & & 2016& & & \\ \text{Dec 31}& \text{Machinery A/c}& & 9,000& \text{Dec 31}& \text{Profit and Loss A/c}& & 9,000\\ & & & \overline{\underset{–}{\underset{–}{9,000}}}& & & & \overline{\underset{–}{\underset{–}{9,000}}}\end{array}$