Chapter 7 Depreciation Provisions and Reserves Solutions

Question - 31 : -
On July 01, 2011 Ashwani purchased a machine for Rs 2,00,000 on credit. Installation expenses Rs 25,000 are paid by cheque. The estimated life is 5 years and its scrap value after 5 years will be Rs 20,000. Depreciation is to be charged on straight line basis. Show the journal entry for the year 2011 and prepare necessary ledger accounts for first three years.

Answer - 31 : -

Books of Ashwani Journal
Date			Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
2011
Jul.01	Machinery A/c			Dr.		2,25,000
		To Creditors for Machinery A/c					2,00,000
		To Bank A/c					25,000
	(Machinery bought on credit and Rs 25,000 paid for installation through cheque)

2011
Dec.31	Depreciation A/c			Dr.		20,500
		To Machinery A/c					20,500
	(Depreciation charged on Machinery)

2011
Dec.31	Profit and Loss A/c			Dr.		20,500
		To Depreciation A/c					20,500
	(Depreciation transferred to Profit and Loss Account)

2012
Dec.31	Depreciation A/c			Dr.		41,000
		To Machinery A/c					41,000
	(Depreciation charged on Machinery)

2012
Dec.31	Profit and Loss A/c			Dr.		41,000
		To Depreciation A/c					41,000
	(Depreciation transferred to Profit and Loss Account)

2013
Dec.31	Depreciation A/c			Dr.		41,000
		To Machinery A/c					41,000
	(Depreciation charged on Machinery)
2013
Dec.31	Profit and Loss A/c			Dr.		41,000
		To Depreciation A/c					41,000
	(Depreciation transferred to Profit and Loss Account)

Ledger Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2011				2011
Jul.01	Creditors for Machinery		2,00,000	Dec.31	Depreciation		20,500
Jul.01	Bank		25,000	Dec.31	Balance c/d		2,04,500
			2,25,000				2,25,000

2012				2012
Jan.01	Balance b/d		2,04,500	Dec.31	Depreciation		41,000
				Dec.31	Balance c/d		1,63,500
			2,04,500				2,04,500

2013				2013
Jan.01	Balance c/d		1,63,500	Dec.31	Depreciation		41,000
				Dec.31	Balance c/d		1,22,500
			1,63,500				1,63,500

Working Note:

Calculation ofannual depreciation

Depreciation (p.a.)	=	(2,00,000 + 25,000 – 20,000)
Depreciation (p.a.)	=	5
	=	Rs 41,000 per annum

Question - 32 : -
On October 01, 2010, a Truck was purchased for Rs 8,00,000 by Laxmi Transport Ltd. Depreciation was provided at 15% p.a. on the diminishing balance basis on this truck. On December 31, 2013 this Truck was sold for Rs 5,00,000. Accounts are closed on 31st March every year. Prepare a Truck Account for the four years

Answer - 32 : -

Books of Laxmi Transport Ltd. Truck Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2010				2011
Oct.01	Bank		8,00,000	Mar.31	Depreciation		60,000
				Mar.31	Balance c/d		7,40,000
			8,00,000				8,00,000

2011				2012
Apr.01	Balance b/d		7,40,000	Mar.31	Depreciation		1,11,000
				Mar.31	Balance c/d		6,29,000
			7,40,000				7,40,000

2012				2013
Apr.01	Balance b/d		6,29,000	Mar.31	Depreciation		94,350
				Mar.31	Balance c/d		5,34,650
			6,29,000				6,29,000

2013				2013
Apr.01	Balance b/d		5,34,650	Dec.31	Depreciation (9 months)		60,148
Dec.31	Profit and Loss (Profit)		25,498	Dec.31	Bank		5,00,000
			5,60,148				5,60,148

Question - 33 : -
Kapil Ltd. purchased a machinery on July 01, 2011 for Rs 3,50,000. It purchased two additional machines, on April 01, 2012 costing Rs 1,50,000 and on October 01, 2012 costing Rs 1,00,000. Depreciation is provided @10% p.a. on straight line basis. On January 01, 2013, first machinery become useless due to technical changes. This machinery was sold for Rs 1,00,000, prepare machinery account for 4 years on the basis of calendar year.

Answer - 33 : -

Books of Kapil Ltd. Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2011				2011
Jul.01	Bank (i)		3,50,000	Dec.31	Depreciation (6 months)		17,500
				Dec.31	Balance c/d		3,32,500
			3,50,000				3,50,000

2012				2012
Jan.01	Balance c/d		3,32,500	Dec.31	Depreciation
Apr.01	Bank (ii)		1,50,000		(i) 35,000 (ii) 11,250 (9 months),
Oct.01	Bank (iii)		1,00,000		(iii) 2,500 (3 months)		48,750
				Dec.31	Balance c/d
					(i) 2,97,500, (ii) 1,38,750,
					(iii) 97,500		5,33,750

			5,82,500				5,82,500

2013				2013
Jan.01	(i) 2,97,500, (ii) 1,38,750,			Jan.01	Bank (i)		1,00,000
	(iii) 97,500		5,33,750	Jan.01	Profit and Loss (Loss)		1,97,500
				Dec.31	Depreciation
					(ii) 15,000 (iii) 10,000		25,000
				Dec.31	Balance c/d
					(ii) 1,23,750, (iii) 87,500		2,11,250

			5,33,750				4,33,750

2014				2014
Jan.01	Balance c/d		2,11,250	Dec.31	Depreciation
	(ii) 1,23,750, (iii) 87,500			Dec.31	(ii) 15,000, (iii) 10,000		25,000
					Balance c/d
					(ii) 1,08,750, (iii) 77,500		1,86,250
			2,11,250				2,11,250
2015
Jan.01	Balance b/d		1,86,250

Question - 34 : -
On January 01, 2011, Satkar Transport Ltd, purchased 3 buses for Rs 10,00,000 each. On July 01, 2013, one bus was involved in an accident and was completely destroyed and Rs 7,00,000 were received from the Insurance Company in full settlement. Depreciation is writen off @15% p.a. on diminishing balance method. Prepare bus account from 2011 to 2014. Books are closed on December 31 every year.

Answer - 34 : -

Books of Satkar Transport Ltd. Bus Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2011				2011
Jan.01	Bank		30,00,000	Dec.31	Depreciation		4,50,000
				Dec.31	Balance c/d		25,50,000

			30,00,000				30,00,000

2012				2012
Jan.01	Balance b/d		25,50,000	Dec.31	Depreciation		3,82,500
				Dec.31	Balance c/d		21,67,500
			25,50,000				25,50,000

2013				2013
Jan.01	Balance b/d		21,67,500	July.01	Depreciation (6 months)		54,187
July.01	Profit and Loss (Profit)		31,687	July.01	Insurance Co. (Insurance claim)		7,00,000
				Dec.31	Depreciation		2,16,750
				Dec.31	Balance c/d		12,28,250
			21,99,187				21,99,187

2014				2014
Jan.01	Balance c/d		12,28,250	Dec.31	Depreciation		1,84,237
				Dec.31	Balance c/d		10,44,013
			12,28,250				12,28,250

Question - 35 : -
On October 01, 2011 Juneja Transport Company purchased 2 Trucks for Rs 10,00,000 each. On July 01, 2013, One Truck was involved in an accident and was completely destroyed and Rs 6,00,000 were received from the insurance company in full settlement. On December 31, 2013 another truck was involved in an accident and destroyed partially, which was not insured. It was sold off for Rs 1,50,000. On January 31, 2014 company purchased a fresh truck for Rs 12,00,000. Depreciation is to be provided at 10% p.a. on the written down value every year. The books are closed every year on March 31. Give the truck account from 2011 to 2014.

Answer - 35 : -

Books of Juneja Transport Company Truck Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2011				2012
Oct.01	Bank		20,00,000	Mar.31	Depreciation		1,00,000
				Mar.31	Balance c/d		19,00,000

			20,00,000				20,00,000

2012				2013
Apr.01	Balance b/d		19,00,000	Mar.31	Depreciation		1,90,000
				Mar.31	Balance c/d		17,10,000
			19,00,000				19,00,000

2013				2013
Apr.01	Balance b/d		17,10,000	Jul.01	Depreciation (3 Month on one Truck)		21,375
				Jul.01	Bank (Insurance Claim)		6,00,000
2014				Jul.01	Profit and Loss (loss)		2,33,625
Jan.31	Bank		12,00,000
				Dec.31	Depreciation (9 Month on II Truck)		64,125
				Dec.31	Bank		1,50,000
				Dec.31	Profit and Loss (Loss)		6,40,875
				2014
				Mar.31	Depreciation (2 Months)		20,000
				Mar.31	Balance c/d		11,80,000

			29,10,000				29,10,000

Truck – 1

	Opening Balance	–	Depreciation	=	Closing Balance
Oct.01, 2011	10,00,000	–	50,000 (6 Months)	=	9,50,000
Apr.01, 2012	9,50,000	–	95,000	=	8,55,000
Apr.01, 2013	8,55,000	–	21,375 (3 Months)	=	8,33,625

Value on July 01, 2013	=	8,33,625
Insurance Claim	=	– 6,00,000
Loss on Truck – 1	=	Rs 2,33,625

Truck – 2

	Opening Balance	–	Depreciation	=	Closing Balance
Oct.01, 2012	10,00,000	–	50,000 (6 Months)	=	9,50,000
Apr.01, 2012	9,50,000	–	95,000	=	8,55,000
Apr.01, 2013	8,55,000	–	64,125 (9 Months)	=	7,90,875

Value on Dec.31, 2013	=	7,90,875
Sale of Truck	=	– 1,50,000
Loss on Truck – 2	=	Rs 6,40,875

Question - 36 : -
A Noida based Construction Company owns 5 cranes and the value of this asset in its books on April 01, 2017 is Rs 40,00,000. On October 01, 2017 it sold one of its cranes whose value was Rs 5,00,000 on April 01, 2017 at a 10% profit. On the same day it purchased 2 cranes for Rs 4,50,000 each. Prepare cranes account. It closes the books on December 31 and provides for depreciation on 10% written down value.

Answer - 36 : -

Cranes Account
Dr.											Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars					J.F.	Amount Rs
2017				2017
Apr.01	Machinery (35,00,000 + 5,00,000)		40,00,000	Oct.01	Depreciation						25,000
Oct.01	Profit and Loss (Profit)		47,500	Oct.01	Bank						5,22,500
Oct.01	Bank		9,00,000	Dec.31	Depreciation
					35,00,000 ×	10	×	9	= 2,62,500
					35,00,000 ×	100	×	12	= 2,62,500
					9,00,000 ×	10	×	6	= 22,500		2,85,000
					9,00,000 ×	100	×	12	= 22,500		2,85,000
				Dec.31	Balance c/d
					32,37,500 + 8,77,500						41,15,000

			49,47,500								49,47,500

Question - 37 : -
Shri Krishan Manufacturing Company purchased 10 machines for Rs 75,000 each on July 01, 2014. On October 01, 2016, one of the machines got destroyed by fire and an insurance claim of Rs 45,000 was admitted by the company. On the same date another machine is purchased by the company for Rs 1,25,000.

The company writes off 15% p.a. depreciation on written down value basis. The company maintains the calendar year as its financial year. Prepare the machinery account from 2014 to 2017.

Answer - 37 : -

Books of Shri Krishna Manufacturing Company Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2014				2014
Jul.01	Bank		7,50,000	Dec.31	Depreciation		56,250
				Dec.31	Balance c/d		6,93,750

			7,50,000				7,50,000

2015				2015
Jan.01	Balance b/d		6,93,750	Dec.31	Depreciation		1,04,063
				Dec.31	Balance c/d		5,89,687
			6,93,750				6,93,750

2016				2016
Jan.01	Balance b/d		5,89,687	Oct.01	Depreciation (9 months		6,634
					for one machine)
Oct.01	Bank		1,25,000	Oct.01	Insurance Co.		45,000
				Oct.01	Profit and Loss (Loss)		7,335
				Dec.31	Depreciation
					(i) 79,608, (ii) 4,688		84,296
				Dec.31	Balance c/d
					(i) 4,51,110, (ii) 1,20,312		5,71,422
			7,14,687				7,14,687

2017				2017
Jan.01	Balance b/d			Dec.31	Depreciation
	(i) 4,51,110, (ii) 1,20,312		5,71,422		(i) 67,667, (ii) 18,047		85,714
				Dec.31	Balance c/d
					(i) 3,83,443, (ii) 1,02,265		4,85,708

			5,71,422				5,71,422

Working Note:

Machine Costing Rs75,000 sold on Oct.01, 2002

	Opening Balance	–	Depreciation	=	Closing Balance
Jul.01, 2014	75,000	–	5,625 (6 months)	=	69,375
Jan.01, 2015	69,375	–	10,406	=	58,969
Jan.01, 2016	58,969	–	6,634 (9 months)	=	52,335

Value on Oct.01, 2016		52,335
Insurance Claim		– 45,000
Loss		Rs 7,335

Question - 38 : -
On January 01, 2014, a Limited Company purchased machinery for Rs 20,00,000. Depreciation is provided @15% p.a. on diminishing balance method. On March 01, 2016, one fourth of machinery was damaged by fire and Rs 40,000 were received from the insurance company in full settlement. On September 01, 2016 another machinery was purchased by the company for Rs 15,00,000.

Write up the machinery account from 2016 to 2017. Books are closed on December 31, every year.

Answer - 38 : -

Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2016				2016
Jan.01	Balance b/d (i) (10,83,750 + 3,61,250)		14,45,000	Mar.01	Depreciation (1/4 Machine for 2 Months)		9,031
Sep.01	Bank (ii)		15,00,000	Mar.01	Bank		40,000
				Mar.01	Profit and Loss		3,12,219
				Dec.31	Depreciation (i)
					(i) 1,62,563 (3/4^th of machine), (ii) 75,000		2,37,563
				Dec.31	Balance c/d
					(i) 9,21,187, (ii) 14,25,000		23,46,187


			29,45,000				29,45,000

2017				2017
Jan.01	Balance b/d			Dec.31	Depreciation
	(i) 9,21,187, (ii) 14,25,000		23,46,187	Dec.31	(i) 1,38,177, (ii) 2,13,750		3,51,927
					Balance c/d
					(i) 7,83,009, (ii) 12,11,250		19,94,260
			23,46,187				23,46,187

Working Note:

Machine (i)


Years	January 01		Depreciation (15% p.a.)	=	Closing Balance
2014	20,00,000	–	3,00,000	=	17,00,000
2015	17,00,000	–	2,55,000	=	14,45,000
2016	14,45,000

1/4^th of Machine (i)


Years	Opening Balance		Depreciation (15% p.a.)	=	Closing Balance
2014	5,00,000	–	75,000	=	4,25,000
2015	4,25,000	–	63,750	=	3,61,250
2016	3,61,250	–	9,031 (2 months)	=	3,52,219

Value on 1 Mar. 2016	=	3,52,219
Insurance Claim	=	40,000
Loss		Rs 3,12,219

Question - 39 : -
A Plant was purchased on 1st July, 2015 at a cost of Rs 3,00,000 and Rs 50,000 were spent on its installation. The depreciation is written off at 15% p.a. on the straight line method. The plant was sold for Rs 1,50,000 on October 01, 2017 and on the same date a new Plant was installed at the cost of Rs 4,00,000 including purchasing value. The accounts are closed on December 31 every year.

Show the machinery account and provision for depreciation account for 3 years

Answer - 39 : -

Plant Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2015				2015
July.01	Bank		3,50,000	Dec.31	Balance c/d		3,50,000
			3,50,000				3,50,000

2016				2016
Jan.01	Balance b/d		3,50,000
				Dec.31	Balance c/d		3,50,000
			3,50,000				3,50,000

2017				2017
Jan.01	Balance b/d		3,50,000	Oct.01	Provision for Depreciation		1,18,125
Oct.01	Bank		4,00,000	Oct.01	Bank		1,50,000
				Oct.01	Profit and Loss		81,875
				Dec.31	Balance c/d		4,00,000
			7,50,000				7,50,000

Provision for Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2015				2015
Dec.31	Balance c/d		26,250	Dec.31	Depreciation		26,250
			26,250				26,250

2016				2016
Dec.31	Balance b/d		78,750	Jan.01	Balance c/d		26,250
				Dec.31	Depreciation		52,500
			78,750				78,750

2017				2017
Oct.01	Plant		1,18,125	Jan.01	Balance b/d		78,750
Dec.31	Balance c/d		15,000	Oct.01	Depreciation (i) (9 months)		39,375
				Dec.31	Depreciation (ii) (3 months)		15,000
			1,33,125				1,33,125

Question - 40 : - An extract of Trial balance from the books of Tahiliani and Sons Enterprises on Marc 31 2017 is given below:

Name of the Account

Debit Amount

Rs

Credit Amount

Rs

Sundry debtors

50,000

Bad debts

6,000

Provision for doubtful debts

4,000

Additional Information:
• Bad Debts proved bad; however, not recorded amounted to Rs 2,000.
• Provision is to be maintained at 8% of debtors
Give necessary accounting entries for writing off the bad debts and creating the provision for doubtful debts account. Also, show the necessary accounts.

Answer - 40 : -

Date		Particulars		L.F.	Debit Amount Rs	Credit Amount Rs

	Bad Debt A/c		Dr.		2,000
		To Debtors A/c				2,000
	(Further bad debt charged from Debtors Account)

	Provision for Doubtful Debt A/c		Dr.		8,000
		To Bad Debt A/c				8,000
	(Amount of bad debt transferred to Provision for Doubtful Debt Account)

	Profit and Loss A/c		Dr.		7,840
		To Provision for Doubtful Debt A/c				7,840
	(Amount of Provision for Doubtful Debt transferred to Profit and Loss Account)

Bad Debt Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2017				2017
Mar.31	Balance b/d		6,000	Mar.31	Provision for Doubtful
Mar.31	Debtors		2,000		Debt		8,000
			8,000				8,000

Debtors Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2017				2017
Mar.31	Balance b/d		50,000	Mar.31	Bad Debt		2,000
				Mar.31	Balance c/d		48,000
			50,000				50,000

Provision for Doubtful Debts Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2017				2017
31 Mar.	Bad Debt (6,000 + 2,000)		8,000	Apr.01	Balance b/d		4,000
31 Mar.	Balance c/d		3,840	Mar.31	Profit and Loss		7,840
			11,840				11,840

Free - Previous Years Question Papers

Name of the Account	Debit Amount Rs	Credit Amount Rs

Sundry debtors	50,000
Bad debts	6,000
Provision for doubtful debts		4,000

Chapter 7 Depreciation Provisions and Reserves Solutions

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