Question

Question : On July 1, 2000, 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 commercial life of the machine will be 12 years and after 12 years its salvage value will be Rs. $12,000$.
Prepare Machine account and Depreciation account in the books of Ashok Ltd. For first three years, if depreciation is written off according to straight line method. The accounts are closed December $31st$, every year.

Answer 1

Answer
Dr Machinery Account Cr

Date	Particulars	JF	Amt. (Rs)	Date	Particulars	JF	Amt. (Rs)
2000 Jul 1	To Bank A/c		$1,20,000$	2000 Dec 31	By Depreciation A/c		$4,500$
				Dec 31	By Balance c/d		$1,15,500$
			$1,20,000$				$1,20,000$
2001 Jan 1	To Balance b/d		$1,15,500$	2001 Dec 31	By Depreciation A/c		$9,000$
				Dec 31	By Balance c/d		$1,06,500$
			$1,15,500$				$1,15,500$
2002 Jan 1	To Balance b/d		$1,06,500$	2002 Dec 31	By Depreciation A/c		$9,000$
				Dec 31	By Balance c/d		$97,500$
			$1,06,500$				$1,06,500$
2003 Jan 1	To Balance b/d		$97,500$

Dr Depreciation Account Cr

Date	Particulars	JF	Amt. (Rs)	Date	Particulars	JF	Amt (Rs)
2000 Dec 31	To Machinery A/c		$4,500$	2000 Dec 31	By Profit & Loss A/c		$4,500$
			$4,500$				$4,500$
2001 Dec 31	To Machinery A/c		$9,000$	2001 Dec 31	By Profit & Loss A/c		$9,000$
			$9,000$				$9,000$
2002 Dec 31	To Machinery A/c		$9,000$	2002 Dec 31	By Profit & Loss A/c		$9,000$
			$9,000$				$9,000$

Working Note
Computation of Annual Amount of Depreciation = $\frac{(1,08,000+12,000-12,000)}{12}=9,000$
For the first year, machine has been used for half year that's why half depreciation has been charged i.e., Rs $4,500$.