Question

The following balances appear in the books of Crystal Ltd on January 1, 2005

$\begin{array}{cc}\text{Items}& \left(Rs\right)\\ \text{Machinery account on}& 15,00,000\\ \text{Provision for depreciation account}& 5,50,000\end{array}$

On April 1, 2005, a machinery which was purchased on January 1, 2002 for Rs 2,00,000 was sold for Rs 75,000. A new machine was purchased on July 1, 2005 for Rs 6,00,000. Depreciation is provided on machinery at $20\%$ per annum on straight line method and books are closed on December 31st every year. Prepare the Machinery account and Provision for depreciation account for the year ending December 31, 2005.

Answer 1

Dr Machinery Account Cr
$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt.(Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt.(Rs)}\\ 2005& & & & 2005& & & \\ \text{Jan 1}& \text{Balance b/d}& & & \text{Apr 1}& \text{Machinery}& & \\ & (13,00,000)& & & & \text{Disposal A/c}& & 2,00,000\\ & +2,00,000& & 15,00,000& \text{Dec 31}& \text{Balance c/d}& & 19,00,000\\ \text{Jul 1}& \text{Bank A/c}& & 6,00,000& & & & \\ & & & \underset{–}{\overline{21,00,000}}& & & & \underset{–}{\overline{21,00,000}}\end{array}$

Dr Provision for Depreciation Account Cr
$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt.(Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt.(Rs)}\\ 2005& & & & 2005& & & \\ \text{Apr 1}& \text{Machinery}& & & \text{Jan 1}& \text{Balance b/d}& & 5,50,000\\ & \text{Disposal A/c}& & 1,30,000& \text{Apr 1}& \text{Depreciation}& & \\ \text{Dec 31}& \text{Balance c/d}& & 7,50,000& & \text{A/c}& & 10,000\\ & & & & \text{Dec 31}& \text{Depreciation}& & \\ & & & & & \text{A/c}& & \\ & & & & & M1=2,60,000& & \\ & & & & & M2=\underset{–}{60,000}& & 3,20,000\\ & & & \underset{–}{\overline{8,80,000}}& & & & \underset{–}{\overline{8,80,000}}\end{array}$

Dr Machinery Disposal Account Cr
$\begin{array}{cccccccc}\text{Date}& \text{Particulars}& \text{JF}& \text{Amt.(Rs)}& \text{Date}& \text{Particulars}& \text{JF}& \text{Amt.(Rs)}\\ 2005& & & & 2005& & & \\ \text{Apr 1}& \text{Machinery A/c}& & 2,00,000& \text{Apr 1}& \text{Provision for}& & \\ & & & & & \text{Dep A/c}& & 1,30,000\\ \text{Apr 1}& \text{Profit}\&& & & \text{Apr 1}& \text{Bank A/c}& & 75,000\\ & \text{Loss A/c}& & & & & & \\ & \text{(Profit on Sale}& & & & & & \\ & \text{of Machine)}& & 5,000& & & & \\ & & & \underset{–}{\overline{2,05,000}}& & & & \underset{–}{\overline{2,05,000}}\end{array}$

Working Note:

Depreciation charged on Rs 2,00,000 of machinery in past three years:

2002 @ $20\%$ = 40,000

2003 @ $20\%$ = 40,000

2004 @ $20\%$ = 40,000

2005 @ $20\%$ = 10,000 (for three months)

Depreciation Charged = Rs 1,30,000 Cost of machine on Apr 1, 2005 = (2,00,000 - 1,30,000) = Rs 70,000

Profit on sale of machine = 75,000 - 70,000 = Rs 5,000