Question 26 of 43advanced🔧 ApplyNumerical8 marks

Berlia Ltd. Purchased a second hand machine for ₹ 56,000 on July 01, 2015 and spent ₹ 24,000 on its repair and installation and ₹ 5,000 for its carriage. On September 01, 2016, it purchased another machine for ₹ 2,50,000 and spent ₹ 10,000 on its installation.

(a)

Depreciation is provided on machinery @10% p.a on original cost method annually on December 31. Prepare machinery account and depreciation account from the year 2015 to 2018.

Answer

PART (a): ORIGINAL COST METHOD (STRAIGHT LINE METHOD)

Working Notes:

  1. Cost of Machine 1:

    • Purchase Price: ₹ 56,000
    • Repair & Installation: ₹ 24,000
    • Carriage: ₹ 5,000
    • Total Cost: ₹ 85,000

  2. Cost of Machine 2:

    • Purchase Price: ₹ 2,50,000
    • Installation: ₹ 10,000
    • Total Cost: ₹ 2,60,000

  3. Depreciation Calculations (on Original Cost @10% p.a.):

    • 2015: M1 = 85,000×10000 \times 10% × 6/12 = ₹ 4,250
    • 2016: M1 = 85,000×10000 \times 10% = ₹ 8,500; M2 = 2,60,000×10000 \times 10% × 4/12 = ₹ 8,667; Total = ₹ 17,167
    • 2017: M1 = ₹ 8,500; M2 = ₹ 26,000; Total = ₹ 34,500
    • 2018: M1 = ₹ 8,500; M2 = ₹ 26,000; Total = ₹ 34,500

Machinery Account:

DateParticularsAmount (₹)DateParticularsAmount (₹)
2015 Jul 01To Bank (M1)56,0002015 Dec 31By Depreciation4,250
To Bank (Repairs)24,000By Balance c/d80,750
To Bank (Carriage)5,000
Total85,000Total85,000
2016 Jan 01To Balance b/d80,7502016 Dec 31By Depreciation17,167
Sep 01To Bank (M2)2,50,000By Balance c/d3,23,583
To Bank (Installation)10,000
Total3,40,750Total3,40,750
2017 Jan 01To Balance b/d3,23,5832017 Dec 31By Depreciation34,500
By Balance c/d2,89,083
Total3,23,583Total3,23,583
2018 Jan 01To Balance b/d2,89,0832018 Dec 31By Depreciation34,500
By Balance c/d2,54,583
Total2,89,083Total2,89,083

Depreciation Account:

DateParticularsAmount (₹)DateParticularsAmount (₹)
2015 Dec 31To Machinery4,2502015 Dec 31By Profit & Loss4,250
2016 Dec 31To Machinery17,1672016 Dec 31By Profit & Loss17,167
2017 Dec 31To Machinery34,5002017 Dec 31By Profit & Loss34,500
2018 Dec 31To Machinery34,5002018 Dec 31By Profit & Loss34,500
(b)

Prepare machinery account and depreciation account from the year 2011 to 2018, if depreciation is provided on machinery @10% p.a. on written down value method annually on December 31.

Answer

PART (b): WRITTEN DOWN VALUE METHOD

Working Notes:

  1. Depreciation for 2015:

    • M1: 85,000×10000 \times 10% × 6/12 = ₹ 4,250
    • WDV at end of 2015: ₹ 80,750

  2. Depreciation for 2016:

    • M1: 80,750×10750 \times 10% = ₹ 8,075
    • M2: 2,60,000×10000 \times 10% × 4/12 = ₹ 8,667
    • Total: ₹ 16,742
    • WDV at end of 2016: ₹ 3,24,008

  3. Depreciation for 2017:

    • M1 WDV: 72,675×10675 \times 10% = ₹ 7,268
    • M2 WDV: 2,51,333×10333 \times 10% = ₹ 25,133
    • Total: ₹ 32,401
    • WDV at end of 2017: ₹ 2,91,607

  4. Depreciation for 2018:

    • M1 WDV: 65,407×10407 \times 10% = ₹ 6,541
    • M2 WDV: 2,26,200×10200 \times 10% = ₹ 22,620
    • Total: ₹ 29,161
    • WDV at end of 2018: ₹ 2,62,446

Machinery Account:

DateParticularsAmount (₹)DateParticularsAmount (₹)
2015 Jul 01To Bank (M1)56,0002015 Dec 31By Depreciation4,250
To Bank (Repairs)24,000By Balance c/d80,750
To Bank (Carriage)5,000
Total85,000Total85,000
2016 Jan 01To Balance b/d80,7502016 Dec 31By Depreciation16,742
Sep 01To Bank (M2)2,50,000By Balance c/d3,24,008
To Bank (Installation)10,000
Total3,40,750Total3,40,750
2017 Jan 01To Balance b/d3,24,0082017 Dec 31By Depreciation32,401
By Balance c/d2,91,607
Total3,24,008Total3,24,008
2018 Jan 01To Balance b/d2,91,6072018 Dec 31By Depreciation29,161
By Balance c/d2,62,446
Total2,91,607Total2,91,607

Depreciation Account:

DateParticularsAmount (₹)DateParticularsAmount (₹)
2015 Dec 31To Machinery4,2502015 Dec 31By Profit & Loss4,250
2016 Dec 31To Machinery16,7422016 Dec 31By Profit & Loss16,742
2017 Dec 31To Machinery32,4012017 Dec 31By Profit & Loss32,401
2018 Dec 31To Machinery29,1612018 Dec 31By Profit & Loss29,161

Balance of Machinery Account on 31.12.2018: ₹ 2,62,446

Explanation

This question from NCERT Accountancy Chapter 7 (Depreciation, Provisions and Reserves) tests understanding of two depreciation methods. In Original Cost Method (SLM), depreciation is calculated on original cost every year, resulting in constant depreciation charge. In WDV Method, depreciation is calculated on diminishing book value, resulting in decreasing depreciation over time. For partial years, depreciation is calculated proportionately based on months of use.

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