Question 38 of 43advanced🔧 ApplyNumerical6 marks

A Noida based Construction Company owns 5 cranes and the value of this asset in its books on April 01, 2017 is ₹ 40,00,000. On October 01, 2017 it sold one of its cranes whose value was ₹ 5,00,000 on April 01, 2017 at a 10% profit. On the same day it purchased 2 cranes for ₹ 4,50,000 each.

Prepare cranes account. It closes the books on December 31 and provides for depreciation on 10% written down value.

Correct Answer

Cranes Account

DateParticularsAmount (₹)DateParticularsAmount (₹)
Apr 01, 2017To Balance b/d40,00,000Oct 01, 2017By Bank (Sale)5,22,500
Oct 01, 2017To Bank (Purchase)9,00,000Oct 01, 2017By Depreciation (on crane sold)25,000
Oct 01, 2017To Profit & Loss A/c (Profit on sale)47,500Dec 31, 2017By Depreciation (4 old cranes)2,62,500
Dec 31, 2017By Depreciation (2 new cranes)22,500
Dec 31, 2017By Balance c/d41,15,000
Total49,47,500Total49,47,500

Profit on Sale of Crane = ₹ 47,500 Balance of Cranes Account as on 31.12.17 = ₹ 41,15,000

Exercise: Numerical Problems | Q: 17 | (Page 49)
For More Understanding

Explanation

This question tests the student's understanding of depreciation on Written Down Value (WDV) method with asset sale and purchase during the year. Key concepts involved: (1) Calculating depreciation for partial periods based on time held, (2) Determining book value at time of sale, (3) Calculating profit/loss on sale, and (4) Preparing the asset account with proper entries for sale, purchase, depreciation, and closing balance.

Solution Steps

  1. Step 1: Calculate depreciation and book value of crane sold

    • Value of crane on April 01, 2017 = ₹ 5,00,000
    • Depreciation for 6 months (Apr 01 to Oct 01) = ₹ 5,00,000×10000 \times 10% × 6/12 = ₹ 25,000
    • Book value on Oct 01, 2017 = ₹ 5,00,000 - ₹ 25,000 = ₹ 4,75,000

  2. Step 2: Calculate profit on sale and sale price

    • Profit = 10% of Book Value = ₹ 4,75,000×10000 \times 10% = ₹ 47,500
    • Sale Price = Book Value + Profit = ₹ 4,75,000 + ₹ 47,500 = ₹ 5,22,500

  3. Step 3: Calculate depreciation on remaining cranes

    • Remaining 4 cranes value = ₹ 40,00,000 - ₹ 5,00,000 = ₹ 35,00,000
    • Depreciation for 9 months (Apr 01 to Dec 31) = ₹ 35,00,000×10000 \times 10% × 9/12 = ₹ 2,62,500

  4. Step 4: Calculate depreciation on new cranes

    • 2 new cranes purchased = ₹ 4,50,000×2000 \times 2 = ₹ 9,00,000
    • Depreciation for 3 months (Oct 01 to Dec 31) = ₹ 9,00,000×10000 \times 10% × 3/12 = ₹ 22,500

  5. Step 5: Calculate closing balance

    • Remaining 4 cranes after depreciation = ₹ 35,00,000 - ₹ 2,62,500 = ₹ 32,37,500
    • New 2 cranes after depreciation = ₹ 9,00,000 - ₹ 22,500 = ₹ 8,77,500
    • Total Balance = ₹ 32,37,500 + ₹ 8,77,500 = ₹ 41,15,000
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