Question

The balances in Equipment account and Accumulated depreciation account as on March 31, 2015 and 2016 are given below:
$$\begin{array}{ccc}\text{Balance as at}& \text{March 31, 2015}& \text{March 31, 2016}\\ \text{Equipment}& 65,00,000& 78,70,000\\ \text{Accumulated depreciation}& 10,80,000& 16,32,000\end{array}$$
The equipment costing Rs. 12,30,000 accumulated depreciation thereon Rs. 7,18,000 was sold for Rs. 4,68,000.
Required:
(i) Compute the amount of equipment purchased, depreciation charged for the year and loss on sale of equipment.
(ii) How each of the item related to the equipment will be reported in the statement of cash flows?

Answer 1

(i) Calculation of Equipment purchased:
Equipment Account
$$\begin{array}{cccc}\text{Particulars}& \text{Amount}& \text{Particulars}& \text{Amount}\\ \text{Balance b/d}& 65,00,000& \text{Bank A/c (Sale proceeds)}& 4,68,000\\ \text{Bank A/c (Balancing figure)}& 26,00,000& \text{Accumulated depreciation A/c (Dep. on equipment sold)}& 7,18,000\\ & & \text{Loss on sale (12,30,000 - 7,18,000 - 4,68,000)}& 44,000\\ & \underset{–}{}& \text{Balance c/d}& \underset{–}{78,70,000}\\ & \underset{–}{91,00,000}& & \underset{–}{91,00,000}\end{array}$$
Calculation of Current year's depreciation:
Accumulated Depreciation Account
$$\begin{array}{cccc}\text{Particulars}& \text{Amount}& \text{Particulars}& \text{Amount}\\ \text{Equipment A/c}& 7,18,000& \text{Balance b/d}& 10,80,000\\ \text{Balance c/d}& \underset{–}{16,32,000}& \text{Depreciation A/c (B.f.)}& \underset{–}{12,70,000}\\ & \underset{–}{23,50,000}& & \underset{–}{23,50,000}\end{array}$$
(ii)
Cash Flow Statement
for the year ending 31st March, 2016

$$\begin{array}{cc}\text{Particulars}& \text{Amount}\\ \text{Cash Flow from Operating Activities:}& \\ \text{Net Profit}& -\\ (+)\text{Depreciation charged on Equipment}& 12,70,000\\ (+)\text{Loss on sale of Equipment}& \underset{–}{44,000}\\ & \\ \text{Cash Flows from Investing Activities:}& \\ \text{Sale of Equipment}& 4,68,000\\ \text{Purchase of Equipment}& \underset{–}{(26,00,000)}\\ & \\ \text{Cash Flow From Financing Activities:}& -\end{array}$$