Question 35 of 43advanced🔧 ApplyNumerical6 marks

Kapil Ltd. purchased a machinery on July 01, 2011 for ₹3,50,000. It purchased two additional machines, on April 01, 2012 costing ₹1,50,000 and on October 01, 2012 costing ₹1,00,000. Depreciation is provided @10% p.a. on straight line basis. On January 01, 2013, first machinery become useless due to technical changes. This machinery was sold for ₹1,00,000. prepare machinery account for 4 years on the basis of calendar year.

Correct Answer

Machinery Account

DateParticularsAmount ₹DateParticularsAmount ₹
20112011
Jul 01To Bank A/c (M1)3,50,000Dec 31By Depreciation A/c17,500
Dec 31By Balance c/d3,32,500
Total3,50,000Total3,50,000
20122012
Jan 01To Balance b/d3,32,500Dec 31By Depreciation A/c48,750
Apr 01To Bank A/c (M2)1,50,000Dec 31By Balance c/d5,34,000
Oct 01To Bank A/c (M3)1,00,000
Total5,82,750Total5,82,750
20132013
Jan 01To Balance b/d5,34,000Jan 01By Bank A/c1,00,000
Jan 01By P&L A/c (Loss)1,97,500
Dec 31By Depreciation A/c25,000
Dec 31By Balance c/d2,11,250
Total5,34,000Total5,34,000
20142014
Jan 01To Balance b/d2,11,250Dec 31By Depreciation A/c25,000
Dec 31By Balance c/d1,86,250
Total2,11,250Total2,11,250

Working Notes:

  1. Depreciation for 2011: M1: ₹3,50,000×10000 \times 10% × 6/12 = ₹17,500

  2. Depreciation for 2012: M1: ₹3,50,000×10000 \times 10% = ₹35,000; M2: ₹1,50,000×10000 \times 10% × 9/12 = ₹11,250; M3: ₹1,00,000×10000 \times 10% × 3/12 = ₹2,500; Total = ₹48,750

  3. Loss on Sale of M1 (Jan 01, 2013): Cost ₹3,50,000 - Dep (₹17,500 + ₹35,000) = Book Value ₹2,97,500 - Sale Price ₹1,00,000 = Loss ₹1,97,500

  4. Depreciation for 2013 & 2014: M2: ₹15,000; M3: ₹10,000; Total = ₹25,000 each year

  5. Balance as on 31.12.2014: M2 (₹1,50,000 - ₹38,750) + M3 (₹1,00,000 - ₹22,500) = ₹1,86,250

Exercise: Numerical Problems | Q: 14 | (Page 48)
For More Understanding

Explanation

This problem involves preparing a Machinery Account over 4 years with multiple purchases and a sale. Under Straight Line Method, depreciation is charged on original cost at 10% p.a. proportional to the period of use. When Machinery 1 was sold on Jan 01, 2013, accumulated depreciation (₹52,500) was deducted from cost (₹3,50,000) to find book value (₹2,97,500). The difference between book value and sale price (₹1,00,000) resulted in loss of ₹1,97,500. The remaining machines continued to depreciate through 2014.

Solution Steps

  1. Step 1: Calculate depreciation for 2011 on M1 (6 months): ₹3,50,000×10000 \times 10% × 6/12 = ₹17,500

  2. Step 2: Calculate depreciation for 2012 on all machines: M1 (₹35,000) + M2 (₹11,250) + M3 (₹2,500) = ₹48,750

  3. Step 3: Calculate Loss on Sale of M1: Book Value (₹2,97,500) - Sale Price (₹1,00,000) = ₹1,97,500

  4. Step 4: Calculate depreciation for 2013 and 2014 on remaining machines: ₹25,000 each year

  5. Step 5: Determine closing balance on 31.12.2014: ₹1,86,250

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