Question

Rs Ltd purchased a vechile for Rs. 4,00,000. After 4 years its salvage value is estimated at Rs. 40,000. Find out the amount of depreciation to be charged every year based on straight line basis, and also show the vehicle account as would appear for four years assuming it is sold for Rs. 50,000 at the end of the fourth year when depreciation is charged to asset account. Prepare the ledger in the books of account of RS. Ltd.

Answer 1

$\begin{array}{ccc}& & \\ \text{Dr}& \text{Vehicle Account}& \text{Cr}\end{array}$

$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt. (Rs)}\\ \text{I Year}& \text{Bank A/c}& & 4,00,000& \text{End of}& \text{Depreciation A/c}& & 90,000\\ & & & & \text{year}& \text{Balance c/d}& & 3,10,000\\ & & & \overline{\underset{–}{\underset{–}{4,00,000}}}& & & & \overline{\underset{–}{\underset{–}{4,00,000}}}\\ \text{II Year}& \text{Balance b/d}& & 3,10,000& \text{End of}& \text{Depreciation A/c}& & 90,000\\ & & & & \text{year}& \text{Balance c/d}& & 2,20,000\\ & & & \overline{\underset{–}{\underset{–}{3,10,000}}}& & & & \overline{\underset{–}{\underset{–}{3,10,000}}}\\ \text{III Year}& \text{Balance b/d}& & 2,20,000& \text{End of}& \text{Depreciation}& & 90,000\\ & & & & \text{year}& \text{Balance c/d}& & 1,30,000\\ & & & \overline{\underset{–}{\underset{–}{2,20,000}}}& & & & \overline{\underset{–}{\underset{–}{2,20,000}}}\\ \text{IV Year}& \text{Balance b/d}& & 1,30,000& \text{End of}& \text{Depreciation}& & 90,000\\ & \text{Profit and Loss A/c}& & 10,000& \text{year}& \text{Bank A/c}& & 50,000\\ & \text{(Profit on Sale of}& & & & & & \\ & \text{Vehicle)}& & & & & & \\ & & & \overline{\underset{–}{\underset{–}{1,40,000}}}& & & & \overline{\underset{–}{\underset{–}{1,40,000}}}\end{array}$

Working Note:

(i) Depreciation = $\frac{\text{Cost of Asset - Salvage Value}}{\text{Estimated Life}}=\frac{4,00,000-40,000}{4}=Rs.90,000$

(ii) Calculation of Profit/Loss on Sale

$\begin{array}{cc}\text{Book Value in the beginning of the year}& 1,30,000\\ \text{(-) Depreciation}& \underset{–}{90,000}\\ \text{Book value of asset on the date of sale}& 40,000\\ \text{Sale Proceeds}& \underset{–}{50,000}\\ \text{Profit on Sale (50,000-40,000)}& \text{Rs}\underset{–}{10,000}\end{array}$