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Question -

Reliance Ltd. Purchased a second hand machine for Rs 56,000 on October 01, 2011 and spent Rs 28,000 on its overhaul and installation before putting it to operation. It is expected that the machine can be sold for Rs 6,000 at the end of its useful life of 15 years. Moreover an estimated cost of Rs 1,000 is expected to be incurred to recover the salvage value of Rs 6,000. Prepare machine account and Provision for depreciation account for the first three years charging depreciation by fixed Instalment Method. Accounts are closed on March 31, every year.



Answer -

Books of Reliance Ltd.

Machinery Account

Dr.

 

 

 

 

 

 

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

2011

 

 

 

2011

 

 

 

Oct.01

Bank

 

84,000

 

 

 

 

 

 

 

 

Dec.31

Balance c/d

 

84,000

 

 

 

84,000

 

 

 

84,000

 

 

 

 

 

 

 

 

2012

 

 

 

2012

 

 

 

Jan.01

Balance b/d

 

84,000

 

 

 

 

 

 

 

 

Dec.31

Balance c/d

 

84,000

 

 

 

84,000

 

 

 

84,000

 

 

 

 

 

 

 

 

2013

 

 

 

2013

 

 

 

Jan.01

Balance b/d

 

84,000

 

 

 

 

 

 

 

 

Dec.31

Balance c/d

 

84,000

 

 

 

84,000

 

 

 

84,000

 

 

 

 

 

 

 

 

 

Provision for Depreciation  Account

Dr.

 

 

 

 

 

 

Cr.

Date

Particulars

J.F.

Amount

Rs

Date

Particulars

J.F.

Amount

Rs

 

 

 

 

2011

 

 

 

 

 

 

 

Dec.31

Depreciation

 

1,316

2011

 

 

 

 

 

 

 

Dec.31

Balance c/d

 

1,316

 

 

 

 

 

 

 

1,316

 

 

 

1,316

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

 

 

 

 

 

 

Jan.01

Balance b/d

 

1,316

2012

 

 

 

Dec.31

Depreciation

 

5,267

Dec.31

Balance c/d

 

6,583

 

 

 

 

 

 

 

6,583

 

 

 

6,583

 

 

 

 

 

 

 

 

 

 

 

 

2013

 

 

 

 

 

 

 

Jan.01

Balance b/d

 

6,583

2013

 

 

 

Dec.31

Depreciation

 

5,267

Dec.31

Balance c/d

 

11,850

 

 

 

 

 

 

 

11,850

 

 

 

11,850

 

 

 

 

2014

 

 

 

 

 

 

 

Jan.01

Balance b/d

 

11,850

 

 

 

 

 

 

 

 

 

Working Note:

Calculation of annual depreciation

Depreciation (p.a.)

=

(56,000 + 28,000 – 6,000 + 1,000)

15 years

 

=

Rs 5,267 per annum

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