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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.
 


Solution

   Dr                                     Vehicle Account                            Cr
DateParticularJFAmt.(Rs.)DateParticularsJFAmt.I YearBank A/c4,00,000End of theBalance c/d4,00,000Year             ––––––             ––––––4,00,0004,00,000             ––––––             ––––––II YearBalance b/d4,00,000End of the Balance c/d4,00,000Year             ––––––             ––––––4,00,0004,00,000             ––––––             ––––––III yearBalance b/d4,00,000End of the Balance c/d4,00,000Year             ––––––             ––––––4,00,0004,00,000             ––––––             ––––––IV YearBalance b/d4,00,000End of theAsset Disposal A/c4,00,000Year             ––––––             ––––––4,00,0004,00,000             ––––––             ––––––
Dr                  Provision for Depreciation Account            Cr
DateParticularJFAmt.(Rs.)DateParticularsJFAmt.I YearBalance c/d90,000End of the yearDepreciation A/c90,000             ––––––             ––––––90,00090,000             ––––––             ––––––II YearBalanced c/d1,80,000End of the yearBalance b/d90,000Depreciation A/c90,000             ––––––             ––––––1,80,0001,80,000             ––––––             ––––––III YearBalance c/d2,70,000End of the yearBalance b/d1,80,000Depreciation A/c90,000             ––––––             ––––––2,70,0002,70,000             ––––––             ––––––IV YearAsset Disposal A/c3,60,000End of the yearBalance b/d2,70,000Depreciation A/c90,000             ––––––             ––––––3,60,0003,60,000             ––––––             ––––––

Dr                    Asset Disposal Account                           Cr
DateParticularJFAmt.(Rs.)DateParticularsJFAmt.End of Machinery A/c4,00,000End of Provision for3,60,000IVth YearIVth yearDepreciation A/cProfit and Loss A/c10,000Bank A/c50,000             ––––––             ––––––4,10,0004,10,000             ––––––             ––––––
Working Note
1. Depreciation =Cost of Asset - Salvage ValueLife of Asset=4,00,00040,0004=90,000
2. Calculation of Profit/loss on Sale 
Book Value as on date of Sale4,00,000(-) Provision for Depreciation(3,60,000)––––––––––40,000(-)Sale Proceeds(50,000)––––––––Profit10,000––––––

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