Question

Sunny ltd. purchased a vehicle 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 a straight line basis and show how to vehicle account would appear for 4 years assuming, it is sold for Rs. 50,000 at the end, when provision for depreciation account is maintained.

Answer 1

Dr Vehicle Account Cr
$$\begin{array}{cccccccc}\text{Date}& \text{Particular}& \text{JF}& \text{Amt.(Rs.)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt.}\\ \text{I Year}& \text{Bank A/c}& & 4,00,000& \text{End of the}& \text{Balance c/d}& & 4,00,000\\ & & & & \text{Year}& & & \\ & & & \underset{–}{}& & & & \underset{–}{}\\ & & & 4,00,000& & & & 4,00,000\\ & & & \underset{–}{}& & & & \underset{–}{}\\ \text{II Year}& \text{Balance b/d}& & 4,00,000& \text{End of the}& \text{Balance c/d}& & 4,00,000\\ & & & & \text{Year}& & & \\ & & & \underset{–}{}& & & & \underset{–}{}\\ & & & 4,00,000& & & & 4,00,000\\ & & & \underset{–}{}& & & & \underset{–}{}\\ \text{III year}& \text{Balance b/d}& & 4,00,000& \text{End of the}& \text{Balance c/d}& & 4,00,000\\ & & & & \text{Year}& & & \\ & & & \underset{–}{}& & & & \underset{–}{}\\ & & & 4,00,000& & & & 4,00,000\\ & & & \underset{–}{}& & & & \underset{–}{}\\ \text{IV Year}& \text{Balance b/d}& & 4,00,000& \text{End of the}& \text{Asset Disposal A/c}& & 4,00,000\\ & & & & \text{Year}& & & \\ & & & \underset{–}{}& & & & \underset{–}{}\\ & & & 4,00,000& & & & 4,00,000\\ & & & \underset{–}{}& & & & \underset{–}{}\end{array}$$
Dr Provision for Depreciation Account Cr
$$\begin{array}{cccccccc}\text{Date}& \text{Particular}& \text{JF}& \text{Amt.(Rs.)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt.}\\ \text{I Year}& \text{Balance c/d}& & 90,000& \text{End of the year}& \text{Depreciation A/c}& & 90,000\\ & & & \underset{–}{}& & & & \underset{–}{}\\ & & & 90,000& & & & 90,000\\ & & & \underset{–}{}& & & & \underset{–}{}\\ \text{II Year}& \text{Balanced c/d}& & 1,80,000& \text{End of the year}& \text{Balance b/d}& & 90,000\\ & & & & & \text{Depreciation A/c}& & 90,000\\ & & & \underset{–}{}& & & & \underset{–}{}\\ & & & 1,80,000& & & & 1,80,000\\ & & & \underset{–}{}& & & & \underset{–}{}\\ \text{III Year}& \text{Balance c/d}& & 2,70,000& \text{End of the year}& \text{Balance b/d}& & 1,80,000\\ & & & & & \text{Depreciation A/c}& & 90,000\\ & & & \underset{–}{}& & & & \underset{–}{}\\ & & & 2,70,000& & & & 2,70,000\\ & & & \underset{–}{}& & & & \underset{–}{}\\ \text{IV Year}& \text{Asset Disposal A/c}& & 3,60,000& \text{End of the year}& \text{Balance b/d}& & 2,70,000\\ & & & & & \text{Depreciation A/c}& & 90,000\\ & & & \underset{–}{}& & & & \underset{–}{}\\ & & & 3,60,000& & & & 3,60,000\\ & & & \underset{–}{}& & & & \underset{–}{}\end{array}$$

Dr Asset Disposal Account Cr
$$\begin{array}{cccccccc}\text{Date}& \text{Particular}& \text{JF}& \text{Amt.(Rs.)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt.}\\ \text{End of}& \text{Machinery A/c}& & 4,00,000& \text{End of}& \text{Provision for}& & 3,60,000\\ \text{IVth Year}& & & & \text{IVth year}& \text{Depreciation A/c}& & \\ & \text{Profit and Loss A/c}& & 10,000& & \text{Bank A/c}& & 50,000\\ & & & \underset{–}{}& & & & \underset{–}{}\\ & & & 4,10,000& & & & 4,10,000\\ & & & \underset{–}{}& & & & \underset{–}{}\end{array}$$
Working Note
1. Depreciation $=\frac{\text{Cost of Asset - Salvage Value}}{\text{Life of Asset}}=\frac{4,00,000-40,000}{4}=90,000$
2. Calculation of Profit/loss on Sale
$$\begin{array}{cc}\text{Book Value as on date of Sale}& 4,00,000\\ \text{(-) Provision for Depreciation}& \underset{–}{(3,60,000)}\\ & 40,000\\ \text{(-)Sale Proceeds}& \underset{–}{(50,000)}\\ \text{Profit}& \underset{–}{10,000}\end{array}$$