Question

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 by fixed instalment method. Accounts are closed on December 31st every year.

Answer 1

Answer
Dr Machinery Account Cr

Date	Particulars	JF	Amt. (Rs)	Date	Particulars	JF	Amt.(Rs)
2001 Oct 1	To Bank A/c $(56,000 + 28,000)		$84,000$	2001 Dec 31	By Balance c/d		$84,000$
			$84,000$				$84,000$
2002 Jan 1	To Balance b/d		$84,000$	2002 Dec 31	By Balance b/d		$84,000$
			$84,000$				$84,000$
2003 Jan 1	To Balance b/d		$84,000$	2003 Dec 31	By Balance b/d		$84,000$
			$84,000$				$84,000$

Dr Provision for Depreciation Account Cr

Date	Particulars	JF	Amt. (Rs)	Date	Particulars	JF	Amt. (Rs)
2001 Dec 31	To Balance c/d		$1,316$	2001 Dec 31	By Depreciation A/c		$1,316$
			$1,316$				$1,316$
2002 Dec 31	To Balance c/d		$6,583$	2002 Jan 1	By Balance b/d		$1,316$
				Dec 31	By Depreciation A/c		$5,267$
			$6,583$				$6,583$
2003 Dec 31	To Balance c/d		$11,850$	2003 Jan 1	By Balance c/d		$6,583$
				Dec 31	By Depreciation A/c		$5,267$
			$11,850$				$11,850$
				2004 Jan 1	By Balance b/d		$11,850$

Working Note
Computation of Depreciation
Cost of Machine $56,000+28,000-6000=78,000+1,000\left(Recoverexpenses\right)=79,000$
Dep = $\frac{79000}{15}=Rs,5267$.