Question

Saraswati Ltd purchased a machinery costing Rs 10,00,000 on January 1, 2001. A new machinery was purchased on 01, May 2002 for Rs 15,00,000 and another on July 1, 2004, for Rs 12,00,000. A part of the machinery which originally cost Rs 2,00,000 in 2001 was sold for Rs 75,000 on October 31, 2004. Show the Machinery account, Provision for depreciation account and Machinery disposal account for 2001 to 2005. If depreciation is provided at $10\%$ per annum on original cost and account are closed on December 31st, every year.

Answer 1

Dr Machinery Account Cr
$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt.(Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt.(Rs)}\\ 2001& & & & 2001& & & \\ \text{Jan 1}& \text{Bank A/c}& & & \text{Dec 31}& \text{Balance c/d}& & 10,00,000\\ & \text{M1}(8,00,000+& & & & & & \\ & 2,00,000)& & 10,00,000& & & & \\ & & & \underset{–}{\overline{10,00,000}}& & & & \underset{–}{\overline{10,00,000}}\\ 2002& & & & 2002& & & \\ \text{Jan 1}& \text{Balance b/d}& & & \text{Dec 31}& \text{Balance c/d}& & 25,00,000\\ & \text{(M1)}& & 10,00,000& & & & \\ \text{May 1}& \text{Bank A/c}& & & & & & \\ & \text{(M2)}& & 15,00,000& & & & \\ & & & \underset{–}{\overline{25,00,000}}& & & & \underset{–}{\overline{25,00,000}}\\ 2003& & & & 2003& & & \\ \text{Jan 1}& \text{Balance b/d}& & 25,00,000& \text{Dec 31}& \text{Balance c/d}& & 25,00,000\\ & & & \underset{–}{\overline{25,00,000}}& & & & \underset{–}{\overline{25,00,000}}\\ 2004& & & & 2004& & & \\ \text{Jan 1}& \text{Balance b/d}& & 25,00,000& \text{Oct 31}& \text{Machinery}& & \\ \text{Jul 1}& \text{Bank A/c}& & & & \text{Disposal A/c}& & 2,00,000\\ & \text{(M3)}& & 12,00,000& \text{Dec 31}& \text{Balance c/d}& & \\ & & & & & \text{M1 = (10,00,000}& & \\ & & & & & -2,00,000)& & \\ & & & & & \text{M2 = 15,00,000}& & \\ & & & & & \text{M3}=\underset{–}{12,00,000}& & 35,00,000\\ & & & \underset{–}{\overline{37,00,000}}& & & & \underset{–}{\overline{37,00,000}}\\ 2005& & & & 2005& & & \\ \text{Jan 1}& \text{Balance b/d}& & & \text{Dec 31}& \text{Balance c/d}& & \\ & \text{M1}=8,00,000& & & & \text{M1}=8,00,000& & \\ & \text{M2 = 15,00,000}& & & & \text{M2 = 15,00,000}& & \\ & \text{M3}=\underset{–}{12,00,000}& & 35,00,000& & \text{M3}=\underset{–}{12,00,000}& & 35,00,000\\ & & & \underset{–}{\overline{35,00,000}}& & & & \underset{–}{\overline{35,00,000}}\end{array}$

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}& & 1,00,000& \text{Dec 31}& \text{Depreciation}& & \\ & & & & & \text{A/c}& & 1,00,000\\ & & & \underset{–}{\overline{1,00,000}}& & & & \underset{–}{\overline{1,00,000}}\\ 2002& & & & 2002& & & \\ \text{Dec 31}& \text{Balance c/d}& & 3,00,000& \text{Jan 1}& \text{Balance b/d}& & 1,00,000\\ & & & & \text{Dec 31}& \text{Depreciation A/c}& & \\ & & & & & \text{M1 = 1,00,000}& & \\ & & & & & \text{M2}=\underset{–}{1,00,000}& & 2,00,000\\ & & & & & \text{(Dep on}& & \\ & & & & & \text{M2 is for 8 months)}& & \\ & & & \underset{–}{\overline{3,00,000}}& & & & \underset{–}{\overline{3,00,000}}\\ 2003& & & & 2003& & & \\ \text{Dec 31}& \text{Balance b/d}& & 5,50,000& \text{Jan 1}& \text{Balance b/d}& & 3,00,000\\ & & & & \text{Dec 31}& \text{Depreciation}& & \\ & & & & & \text{A/c}& & \\ & & & & & \text{M1 = 1,00,000}& & \\ & & & & & \text{M2}=\underset{–}{1,50,000}& & 2,50,000\\ & & & \underset{–}{\overline{5,50,000}}& & & & \underset{–}{\overline{5,50,000}}\\ 2004& & & & 2004& & & \\ \text{Jan 31}& \text{Machinery}& & & \text{Jan 1}& \text{Balance b/d}& & 5,50,000\\ & \text{Disposal A/c}& & 76,667& \text{Oct 31}& \text{Depreciation A/c}& & 16,667\\ \text{Dec 31}& \text{Balance c/d}& & 7,80,000& \text{Dec 31}& \text{Depreciation}& & \\ & & & & & \text{A/c}& & \\ & & & & & \text{M1}=80,000& & \\ & & & & & \text{M2 = 1,50,000}& & \\ & & & & & \text{M3}=\underset{–}{60,000}& & 2,90,000\\ & & & \underset{–}{\overline{8,56,667}}& & & & \underset{–}{\overline{8,56,667}}\\ 2005& & & & 2005& & & \\ \text{Dec 31}& \text{Balance c/d}& & 11,30,000& \text{Jan 1}& \text{Balance b/d}& & 7,80,000\\ & & & & \text{Dec 31}& \text{Depreciation A/c}& & \\ & & & & & \text{M1}=80,000& & \\ & & & & & \text{M2}=1,50,000& & \\ & & & & & \text{M3}=\underset{–}{1,20,000}& & 3,50,000\\ & & & \underset{–}{\overline{11,30,000}}& & & & \underset{–}{\overline{11,30,000}}\end{array}$

Dr Machinery Disposal Account Cr
$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt.(Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt.(Rs)}\\ 2004& & & & 2004& & & \\ \text{Oct 31}& \text{Machinery A/c}& & 2,00,000& \text{Oct 31}& \text{Depreciation}& & \\ & & & & & \text{A/c}& & 76,667\\ & & & & \text{Oct 31}& \text{Bank A/c}& & \\ & & & & & \text{(Sales Proceed)}& & 75,000\\ & & & & \text{Oct 31}& \text{Profit}\&\text{Loss}& & \\ & & & & & \text{A/c}& & \\ & & & & & \text{(Loss on Sale)}& & 48,333\\ & & & \underset{–}{\overline{2,00,000}}& & & & \underset{–}{\overline{2,00,000}}\end{array}$

Working Note

Computation of Profit or Loss on Disposal

Total Dep charged on Machine till Oct 1, 2004

20,000 + 20,000 + 20,000 + 16,667 = Rs 76,667

(2001) (2002) (2003) (2004 Oct)

Value of Machine on Oct 1, 2004 = 2,00,000 - 76,667 = Rs 1,23,333
Loss on Sale of Machine = [1,23,333 - 75,000] = Rs 48,333 (Loss)