Question 27 of 43advanced🔧 ApplyNumerical8 marks

Ganga Ltd. purchased a machinery on January 01, 2014 for ₹ 5,50,000 and spent ₹ 50,000 on its installation. On September 01, 2014 it purchased another machine for ₹ 3,70,000. On May 01, 2015 it purchased another machine for ₹ 8,40,000 (including installation expenses). Depreciation was provided on machinery @10% p.a. on original cost method annually on December 31. Prepare:

(a)

Machinery account and depreciation account for the years 2014, 2015, 2016 and 2017.

Answer

Machinery Account Dr. Cr.

DateParticularsAmount (₹)DateParticularsAmount (₹)
20142014
Jan 01To Bank (M1)5,50,000Dec 31By Depreciation72,333
Jan 01To Bank (Inst.)50,000Dec 31By Balance c/d8,97,667
Sep 01To Bank (M2)3,70,000
         |                                 |             |             |                       |             
         |  **Total**                      | **9,70,000**|             |  **Total**            | **9,70,000**
         |                                 |             |             |                       |

2015 | | | 2015 | |
Jan 01 | To Balance b/d | 8,97,667 | Dec 31 | By Depreciation | 1,53,000
May 01 | To Bank (M3) | 8,40,000 | Dec 31 | By Balance c/d | 15,84,667
| | | | |
| Total | 17,37,667| | Total | 17,37,667 | | | | |
2016 | | | 2016 | |
Jan 01 | To Balance b/d | 15,84,667 | Dec 31 | By Depreciation | 1,81,000
| | | Dec 31 | By Balance c/d | 14,03,667
| Total | 15,84,667| | Total | 15,84,667 | | | | |
2017 | | | 2017 | |
Jan 01 | To Balance b/d | 14,03,667 | Dec 31 | By Depreciation | 1,81,000
| | | Dec 31 | By Balance c/d | 12,22,667
| Total | 14,03,667| | Total | 14,03,667

Depreciation Account Dr. Cr.

DateParticularsAmount (₹)DateParticularsAmount (₹)
20142014
Dec 31To Machinery A/c72,333Dec 31By Profit & Loss A/c72,333
         |                       |             |             |                       |

2015 | | | 2015 | |
Dec 31 | To Machinery A/c | 1,53,000 | Dec 31 | By Profit & Loss A/c | 1,53,000
| | | | |
2016 | | | 2016 | |
Dec 31 | To Machinery A/c | 1,81,000 | Dec 31 | By Profit & Loss A/c | 1,81,000
| | | | |
2017 | | | 2017 | |
Dec 31 | To Machinery A/c | 1,81,000 | Dec 31 | By Profit & Loss A/c | 1,81,000

(b)

If depreciation is accumulated in provision for Depreciation account then prepare machine account and provision for depreciation account for the years 2014, 2015, 2016 and 2017.

Answer

Machinery Account Dr. Cr.

DateParticularsAmount (₹)DateParticularsAmount (₹)
20142014
Jan 01To Bank (M1)5,50,000Dec 31By Balance c/d9,70,000
Jan 01To Bank (Inst.)50,000
Sep 01To Bank (M2)3,70,000
         |  **Total**            |  **9,70,000**|             |  **Total**            |  **9,70,000**

2015 | | | 2015 | |
Jan 01 | To Balance b/d | 9,70,000 | Dec 31 | By Balance c/d | 18,10,000
May 01 | To Bank (M3) | 8,40,000 | | |
| Total | 18,10,000| | Total | 18,10,000 2016 | | | 2016 | |
Jan 01 | To Balance b/d | 18,10,000 | Dec 31 | By Balance c/d | 18,10,000
| Total | 18,10,000| | Total | 18,10,000 2017 | | | 2017 | |
Jan 01 | To Balance b/d | 18,10,000 | Dec 31 | By Balance c/d | 18,10,000
| Total | 18,10,000| | Total | 18,10,000

Provision for Depreciation Account Dr. Cr.

DateParticularsAmount (₹)DateParticularsAmount (₹)
20142014
Dec 31To Balance c/d72,333Dec 31By Depreciation72,333
         |  **Total**            |    **72,333**|             |  **Total**            |    **72,333**

2015 | | | 2015 | |
Dec 31 | To Balance c/d | 2,25,333 | Jan 01 | By Balance b/d | 72,333
| | | Dec 31 | By Depreciation | 1,53,000
| Total | 2,25,333| | Total | 2,25,333 2016 | | | 2016 | |
Dec 31 | To Balance c/d | 4,06,333 | Jan 01 | By Balance b/d | 2,25,333
| | | Dec 31 | By Depreciation | 1,81,000
| Total | 4,06,333| | Total | 4,06,333 2017 | | | 2017 | |
Dec 31 | To Balance c/d | 5,87,333 | Jan 01 | By Balance b/d | 4,06,333
| | | Dec 31 | By Depreciation | 1,81,000
| Total | 5,87,333| | Total | 5,87,333

Explanation

This solution calculates depreciation using the Original Cost Method (Straight Line Method) at 10% p.a.

Calculation of Depreciation:

  1. Machine 1 (₹6,00,000): Purchased Jan 01, 2014. Annual Dep = ₹60,000.
  2. Machine 2 (₹3,70,000): Purchased Sep 01, 2014.
    • 2014: 4 months = 3,70,000×10000 \times 10% × 4/12 = ₹12,333.
    • 2015-2017: Full year = ₹37,000.
  3. Machine 3 (₹8,40,000): Purchased May 01, 2015.
    • 2015: 8 months = 8,40,000×10000 \times 10% × 8/12 = ₹56,000.
    • 2016-2017: Full year = ₹84,000.

Part (a) shows depreciation charged directly to the Machinery Account, reducing its book value annually. Part (b) shows the Machinery Account maintained at original cost, while depreciation is accumulated in a separate Provision for Depreciation Account.

PreviousNext