Question 32 of 43advanced🔧 ApplyNumerical8 marks

Carriage Transport Company purchased 5 trucks at the cost of ₹2,00,000 each on April 01, 2011. The company writes off depreciation @20% p.a. on original cost and closes its books on December 31, every year. On October 01, 2013, one of the trucks is involved in an accident and is completely destroyed. Insurance company has agreed to pay ₹70,000 in full settlement of the claim. On the same date the company purchased a second hand truck for ₹1,00,000 and spent ₹20,000 on its overhauling. Prepare truck account and provision for depreciation account for the three years ended on December 31, 2013. Also give truck account if truck disposal account is prepared.

Correct Answer

(i) Truck Account, Provision for Depreciation Account, and Truck Disposal Account prepared for three years ending December 31, 2013

(ii) Loss on settlement of Truck Insurance: ₹30,000

(iii) Balance of Provision for Depreciation A/c as on 31.12.13: ₹4,46,000

(iv) Balance of Trucks Account as on 31.12.13: ₹9,20,000

Exercise: Numerical Problems | Q: 10 | (Page 48)
For More Understanding

Explanation

This problem involves calculating depreciation on original cost method, handling asset disposal through insurance claim, and preparing ledger accounts. The key aspects are: (1) Depreciation is calculated on original cost @ 20% p.a., (2) For disposed truck, accumulated depreciation from April 1, 2011 to October 1, 2013 is calculated, (3) New truck purchase includes overhaul cost as capital expenditure.

Solution Steps

  1. Step 1: Calculate Depreciation for 2011 (9 months: April 1 to December 31) on 5 trucks: 10,00,000×20000 \times 20% × 9/12 = ₹1,50,000

  2. Step 2: Calculate Depreciation for 2012 (full year) on 5 trucks: 10,00,000×20000 \times 20% = ₹2,00,000

  3. Step 3: Calculate Depreciation for 2013: (a) On 4 continuing trucks: 8,00,000×20000 \times 20% = ₹1,60,000, (b) On destroyed truck (9 months): 2,00,000×20000 \times 20% × 9/12 = ₹30,000, (c) On new truck (3 months): 1,20,000×20000 \times 20% × 3/12 = ₹6,000. Total = ₹1,96,000

  4. Step 4: Calculate Accumulated Depreciation on destroyed truck: 30,000 (2011) + 40,000 (2012) + 30,000 (2013) = ₹1,00,000

  5. Step 5: Calculate Loss on Insurance Settlement: Original Cost (₹2,00,000) - Accumulated Depreciation (₹1,00,000) = Book Value (₹1,00,000). Book Value - Insurance Claim (₹70,000) = Loss ₹30,000

  6. Step 6: Balance of Provision for Depreciation A/c: 1,50,000 + 2,00,000 + 1,96,000 - 1,00,000 (transferred to Disposal) = ₹4,46,000

  7. Step 7: Balance of Trucks Account: 4 trucks (₹8,00,000) + New truck (₹1,20,000) = ₹9,20,000

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