On October 01, 2011 Juneja Transport Company purchased 2 Trucks for ₹ 10,00,000 each. On July 01, 2013, One Truck was involved in an accident and was completely destroyed and ₹ 6,00,000 were received from the insurance company in full settlement. On December 31, 2013 another truck was involved in an accident and destroyed partially, which was not insured. It was sold off for ₹ 1,50,000. On January 31, 2014 company purchased a fresh truck for ₹ 12,00,000. Depreciation is to be provided at 10% p.a. on the written down value every year. The books are closed every year on March 31. Give the truck account from 2011 to 2014.
Working Notes:
1. Calculation of WDV of Trucks:
| Year | Period | Opening WDV | Depreciation | Closing WDV |
|---|---|---|---|---|
| 2011-12 | Oct 1 to Mar 31 (6 months) | 20,00,000 | 20,00,% × 6/12 = 1,00,000 | 19,00,000 |
| 2012-13 | Full year | 19,00,000 | 19,00,% = 1,90,000 | 17,10,000 |
2. WDV of each Truck on April 1, 2013 = 17,10,000 ÷ 2 = ₹8,55,000
3. Truck 1 (Accident on July 1, 2013):
- WDV on April 1, 2013: ₹8,55,000
- Depreciation (3 months): 8,55,% × 3/12 = ₹21,375
- WDV on July 1, 2013: 8,55,000 - 21,375 = ₹8,33,625
- Insurance received: ₹6,00,000
- Loss on Truck 1: 8,33,625 - 6,00,000 = ₹2,33,625
4. Truck 2 (Sold on December 31, 2013):
- WDV on April 1, 2013: ₹8,55,000
- Depreciation (9 months): 8,55,% × 9/12 = ₹64,125
- WDV on Dec 31, 2013: 8,55,000 - 64,125 = ₹7,90,875
- Sale proceeds: ₹1,50,000
- Loss on Truck 2: 7,90,875 - 1,50,000 = ₹6,40,875
5. New Truck (Purchased January 31, 2014):
- Cost: ₹12,00,000
- Depreciation (2 months): 12,00,% × 2/12 = ₹20,000
- WDV on March 31, 2014: ₹11,80,000
Truck Account (Dr.)
| Date | Particulars | Amount (₹) | Date | Particulars | Amount (₹) |
|---|---|---|---|---|---|
| 2011-12 | 2011-12 | ||||
| Oct 1 | To Bank A/c | 20,00,000 | Mar 31 | By Depreciation A/c | 1,00,000 |
| Mar 31 | By Balance c/d | 19,00,000 | |||
| Total | 20,00,000 | Total | 20,00,000 | ||
| 2012-13 | 2012-13 | ||||
| Apr 1 | To Balance b/d | 19,00,000 | Mar 31 | By Depreciation A/c | 1,90,000 |
| Mar 31 | By Balance c/d | 17,10,000 | |||
| Total | 19,00,000 | Total | 19,00,000 | ||
| 2013-14 | 2013-14 | ||||
| Apr 1 | To Balance b/d | 17,10,000 | Jul 1 | By Depreciation A/c | 21,375 |
| Jan 31 | To Bank A/c | 12,00,000 | Jul 1 | By Insurance Co. | 6,00,000 |
| Jul 1 | By Profit & Loss A/c (Loss) | 2,33,625 | |||
| Dec 31 | By Depreciation A/c | 64,125 | |||
| Dec 31 | By Bank A/c | 1,50,000 | |||
| Dec 31 | By Profit & Loss A/c (Loss) | 6,40,875 | |||
| Mar 31 | By Depreciation A/c | 20,000 | |||
| Mar 31 | By Balance c/d | 11,80,000 | |||
| Total | 29,10,000 | Total | 29,10,000 | ||
| 2014-15 | |||||
| Apr 1 | To Balance b/d | 11,80,000 |
Balance of Truck Account as on April 1, 2014: ₹11,80,000
Explanation
This question tests the student's understanding of depreciation on Written Down Value (WDV) method with assets being sold/destroyed during the year. Key points: (1) Depreciation is calculated pro-rata for the period the asset is used before disposal. (2) For the first truck destroyed on July 1, 2013, depreciation is charged for 3 months (April-June). (3) For the second truck sold on December 31, 2013, depreciation is charged for 9 months (April-December). (4) For the new truck purchased on January 31, 2014, depreciation is charged for 2 months (February-March). (5) Loss/Gain is calculated as WDV at disposal minus amount received. The final balance of ₹11,80,000 represents the WDV of the new truck after 2 months of depreciation.
Solution Steps
Step 1: Calculate depreciation for Year 1 (2011-12): 20,00,% × 6/12 = ₹1,00,000; WDV = ₹19,00,000
Step 2: Calculate depreciation for Year 2 (2012-13): 19,00,% = ₹1,90,000; WDV = ₹17,10,000
Step 3: Determine WDV per truck on April 1, 2013: 17,10,000 ÷ 2 = ₹8,55,000 each
Step 4: For Truck 1 (destroyed July 1, 2013): Depreciation = 8,55,% × 3/12 = ₹21,375; WDV at disposal = ₹8,33,625; Loss = 8,33,625 - 6,00,000 = ₹2,33,625
Step 5: For Truck 2 (sold December 31, 2013): Depreciation = 8,55,% × 9/12 = ₹64,125; WDV at sale = ₹7,90,875; Loss = 7,90,875 - 1,50,000 = ₹6,40,875
Step 6: For New Truck (purchased January 31, 2014): Depreciation = 12,00,% × 2/12 = ₹20,000; Closing WDV = ₹11,80,000
Step 7: Prepare Truck Account showing all transactions with proper balancing each year