A joint stock company had bought machinery for Rs 100000 including therein a boiler worth Rs 10000. The machinery account was for the first four years credited for depreciation on the reducing instalment system at the rate of 10% per annum. During the fifth year, i.e, the current year, the boiler becomes useless on account of damage to its parts. The damaged boiler is sold for Rs 2000 which amount is credited to machinery account.

Prepare the machinery account for the current year, adjusting therein the cash received and the loss suffered on the damaged boiler and the depreciation of the machinery for the current year.

The answer given in the book is: Loss on sale of boiler=Rs 4561; closing balance of machinery account = Rs 53144

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Solution

Machinery Account
Dr.
Cr.
Date
Particulars
Amount
(Rs)
Date
Particulars
Amount
(Rs)

Starting of Fifth Year
Balance B/d (See Note 1)

During the year
Bank
2,000

Machinery
59,049

Profit and Loss Account (loss)
4,561

Boiler
6,561
65,610
End of Year
Depreciation
5,905

Balance C/d
53,144

65,610

65,610

Note: 1
Calculation of Brought Forward Balance of Machinery in 5^th Year i.e. Current Year
Particulars
Machinery Rs.
Boiler Rs.
Purchase Cost
90,000
10,000
Less: Depreciation 1^st Year
9,000
1,000
Balance after 1^st Year
81,000
9,000
Less: Depreciation 2^nd Year
8,100
900
Balance after 2^nd Year
72,900
8,100
Less: Depreciation 3^rd Year
7,290
810
Balance after 3^rd Year
65,610
7,290
Less: Depreciation 4^th Year
6,651
729
Balance after 4^th Year
59,049
6,561
Balance at the Beginning of 5^th Year
59,049
6,561

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Particulars	Machinery Rs.	Boiler Rs.
Purchase Cost	90,000	10,000
Less: Depreciation 1^st Year	9,000	1,000
Balance after 1^st Year	81,000	9,000
Less: Depreciation 2^nd Year	8,100	900
Balance after 2^nd Year	72,900	8,100
Less: Depreciation 3^rd Year	7,290	810
Balance after 3^rd Year	65,610	7,290
Less: Depreciation 4^th Year	6,651	729
Balance after 4^th Year	59,049	6,561
Balance at the Beginning of 5^th Year	59,049	6,561

Machinery Account
Dr.					Cr.
Date	Particulars		Amount (Rs)	Date		Particulars	Amount (Rs)


Starting of Fifth Year	Balance B/d (See Note 1)			During the year		Bank	2,000
	Machinery	59,049		During the year		Profit and Loss Account (loss)	4,561
	Boiler	6,561	65,610	End of Year		Depreciation	5,905

						Balance C/d	53,144
			65,610				65,610