Question

Reliance Ltd purchased a second-hand machine for Rs 56,000 on October 1, 2001, and spent Rs 28,000 on its overhaul and installation before putting it to operation. It is expected that the machine can be sold for Rs 6,000 at the end of its useful life of 15 years. Moreover, an estimated cost of Rs 1,000 is expected to be incurred to recover the salvage value of Rs 6,000. Prepare Machine account and Provision for depreciation account for the first three years charging depreciation by fixed instalment method. Accounts are closed on December 31 st every year.

Answer 1

Dr Machinery Account Cr
$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt.(Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt.(Rs)}\\ 2001& & & & 2001& & & \\ \text{Oct 1}& \text{Bank A/c}& & & \text{Dec 31}& \text{Balance c/d}& & 84,000\\ & (56,000+28,000)& & 84,000& & & & \\ & & & \underset{–}{\overline{84,000}}& & & & \underset{–}{\overline{84,000}}\\ 2002& & & & 2002& & & \\ \text{Jan 1}& \text{Balance b/d}& & 84,000& \text{Dec 31}& \text{Balance c/d}& & 84,000\\ & & & \underset{–}{\overline{84,000}}& & & & \underset{–}{\overline{84,000}}\\ 2003& & & & 2003& & & \\ \text{Jan 1}& \text{Balance b/d}& & 84,000& \text{Dec 31}& \text{Balance c/d}& & 84,000\\ & & & \underset{–}{\overline{84,000}}& & & & \underset{–}{\overline{84,000}}\end{array}$

Dr Provision for Depreciation Account Cr
$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt.(Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt.(Rs)}\\ 2001& & & & 2001& & & \\ \text{Dec 31}& \text{Balance c/d}& & 1,316& \text{Dec 31}& \text{Depreciation A/c}& & 1,316\\ & & & \underset{–}{\overline{1,316}}& & & & \underset{–}{\overline{1,316}}\\ 2002& & & & 2002& & & \\ \text{Dec 31}& \text{Balance c/d}& & 6,583& \text{Jan 1}& \text{Balance b/d}& & 1,316\\ & & & & \text{Dec 31}& \text{Depreciation A/c}& & 5,267\\ & & & \underset{–}{\overline{6,583}}& & & & \underset{–}{\overline{6,583}}\\ 2003& & & & 2003& & & \\ \text{Dec 31}& \text{Balance c/d}& & 11,850& \text{Jan 1}& \text{Balance b/d}& & 6,583\\ & & & & \text{Dec 31}& \text{Depreciation A/c}& & 5,267\\ & & & \underset{–}{\overline{11,850}}& & & & \underset{–}{\overline{11,850}}\\ & & & & 2004& & & \\ & & & & \text{Jan 1}& \text{Balance b/d}& & 11,850\end{array}$

Computation of Depreciation

$\begin{array}{c}\text{Cost of Machine}56,000\\ +28,000\\ \underset{–}{-6,000}\text{(Scrap)}\\ 78,000\\ +1,000\text{(Recover expenses)}\\ \underset{–}{79,000}\end{array}$

Dep = 79,000 / 15 = Rs.5,267