Azad Ltd. purchased furniture on October 01, 2014 for ₹ 4,50,000. On March 01, 2015 it purchased another furniture for ₹ 3,00,000. On July 01, 2016 it sold off the first furniture purchased in 2014 for ₹ 2,25,000. Depreciation is provided at 15% p.a. on written down value method each year. Accounts are closed each year on March 31. Prepare furniture account, and accumulated depreciation account for the years ended on March 31, 2015, March 31, 2016 and March 31, 2017. Also give the above two accounts if furniture disposal account is opened.
(accounts_with_disposal) Books of Azad Ltd. (With Disposal Account) Furniture Account
| Dr. | Cr. |
|---|---|
| Date | Particulars |
| 2014 Oct. 01 | Bank (F1) |
| 2015 Mar. 01 | Bank (F2) |
| 7,50,000 | |
| 2015 Apr. 01 | Balance b/d |
| 7,50,000 | |
| 2016 Apr. 01 | Balance b/d |
| 7,50,000 |
Provision for Depreciation Account
| Dr. | Cr. |
|---|---|
| Date | Particulars |
| 2015 Mar. 31 | Balance c/d |
| 37,500 | |
| 2016 Mar. 31 | Balance c/d |
| 1,44,376 | |
| 2016 Jul. 01 | Furniture Disposal |
| 2017 Mar. 31 | Balance c/d |
| 1,95,416 |
Furniture Disposal Account
| Dr. | Cr. |
|---|---|
| Date | Particulars |
| 2016 Jul. 01 | Furniture |
| 4,50,000 |
(accounts_without_disposal) Books of Azad Ltd. Furniture Account
| Dr. | Cr. |
|---|---|
| Date | Particulars |
| 2014 Oct. 01 | Bank (F1) |
| 2015 Mar. 01 | Bank (F2) |
| 7,50,000 | |
| 2015 Apr. 01 | Balance b/d |
| 7,50,000 | |
| 2016 Apr. 01 | Balance b/d |
| 7,50,000 |
Provision for Depreciation Account
| Dr. | Cr. |
|---|---|
| Date | Particulars |
| 2015 Mar. 31 | Balance c/d |
| 37,500 | |
| 2016 Mar. 31 | Balance c/d |
| 1,44,376 | |
| 2016 Jul. 01 | Furniture (Acc. Dep on sold asset) |
| 2017 Mar. 31 | Balance c/d |
| 1,95,416 |
(working_notes) 1. Calculation of Depreciation:
Year 2014-15:
- Furniture 1 (Purchased Oct 01, 2014): Cost: ₹ 4,50,000. Time: 6 months. Depreciation = 4,50,% × (6/12) = ₹ 33,750.
- Furniture 2 (Purchased Mar 01, 2015): Cost: ₹ 3,00,000. Time: 1 month. Depreciation = 3,00,% × (1/12) = ₹ 3,750.
- Total Depreciation for 2014-15: ₹ 33,750 + ₹ 3,750 = ₹ 37,500.
Year 2015-16:
- Furniture 1: WDV (Opening) = 4,50,000 - 33,750 = ₹ 4,16,250. Depreciation = 4,16,% = ₹ 62,438.
- Furniture 2: WDV (Opening) = 3,00,000 - 3,750 = ₹ 2,96,250. Depreciation = 2,96,% = ₹ 44,438.
- Total Depreciation for 2015-16: ₹ 62,438 + ₹ 44,438 = ₹ 1,06,876.
Year 2016-17 (Up to July 01, 2016):
- Furniture 1 (Sold July 01, 2016): WDV (Opening) = 4,16,250 - 62,438 = ₹ 3,53,812. Time: 3 months (Apr-June). Depreciation = 3,53,% × (3/12) = ₹ 13,268.
- Furniture 2: WDV (Opening) = 2,96,250 - 44,438 = ₹ 2,51,812. Depreciation (Full Year) = 2,51,% = ₹ 37,772.
- Total Depreciation for 2016-17: ₹ 13,268 + ₹ 37,772 = ₹ 51,040.
2. Calculation of Profit/Loss on Sale of Furniture:
- Book Value of Furniture 1 on date of sale (July 01, 2016) = WDV (Opening) - Dep. for current year = 3,53,812 - 13,268 = ₹ 3,40,544.
- Sale Value = ₹ 2,25,000.
- Loss on Sale = 3,40,544 - 2,25,000 = ₹ 1,15,544.
Explanation
The solution involves calculating depreciation using the Written Down Value (WDV) method at 15% p.a. For the year 2014-15, depreciation is calculated for 6 months on the first furniture and 1 month on the second. In 2015-16, depreciation is calculated on the opening WDV for the full year. In 2016-17, depreciation is calculated up to the sale date (July 01) for the first furniture and for the full year for the second furniture. The loss on sale is determined by comparing the Book Value (Cost minus Accumulated Depreciation) with the sale price. When a Disposal Account is opened, the cost and accumulated depreciation of the sold asset are transferred to it, and the loss is debited to the Profit & Loss Account.
Solution Steps
Step 1: Calculate depreciation for each year based on the WDV method and time period (pro rata for partial years).
Step 2: Determine the Book Value of the furniture sold on July 01, 2016, by deducting accumulated depreciation from the original cost.
Step 3: Calculate Loss on Sale by subtracting the Sale Price from the Book Value.
Step 4: Prepare the Furniture Account by recording purchases and the sale (or transfer to Disposal Account).
Step 5: Prepare the Provision for Depreciation Account by recording annual depreciation and the transfer of accumulated depreciation on the sold asset.
Step 6: Prepare the Furniture Disposal Account (if applicable) by debiting the asset's cost and crediting accumulated depreciation and the sale proceeds, with the balance being the loss.