Question 30 of 43advanced🔧 ApplyNumerical6 marks

The following balances appear in the books of Crystal Ltd, on Jan 01, 2015 ₹ Machinery account on 15,00,000 Provision for depreciation account 5,50,000 On April 01, 2015 a machinery which was purchased on January 01, 2012 for ₹ 2,00,000 was sold for ₹ 75,000. A new machine was purchased on July 01, 2015 for ₹ 6,00,000. Depreciation is provided on machinery at 20% p.a. on Straight line method and books are closed on December 31 every year. Prepare the machinery account and provision for depreciation account for the year ending December 31, 2015.

Correct Answer

Working Notes:

1. Calculation of Depreciation on Sold Machinery:

  • Date of Purchase: January 01, 2012
  • Cost: ₹2,00,000
  • Date of Sale: April 01, 2015
  • Period: 3 years 3 months (Jan 1, 2012 to April 1, 2015)
  • Total Depreciation = ₹2,00,000×20000 \times 20/100×3.25100 \times 3.25 years = ₹1,30,000

2. Book Value of Sold Machinery:

  • Cost: ₹2,00,000
  • Less: Total Depreciation: ₹1,30,000
  • Book Value: ₹70,000

3. Profit/Loss on Sale of Machinery:

  • Sale Price: ₹75,000
  • Less: Book Value: ₹70,000
  • Profit on Sale: ₹5,000

4. Depreciation for the Year 2015:

  • On remaining machinery (₹13,00,000) for full year: ₹13,00,000×20000 \times 20/100 = ₹2,60,000
  • On sold machinery (₹2,00,000) for 3 months: ₹2,00,000×20000 \times 20/100×3100 \times 3/12 = ₹10,000
  • On new machinery (₹6,00,000) for 6 months: ₹6,00,000×20000 \times 20/100×6100 \times 6/12 = ₹60,000
  • Total Depreciation for 2015: ₹3,30,000

Machinery Account:

Dr.Cr.
DateParticularsAmount ₹DateParticularsAmount ₹
20152015
Jan 1To Balance b/d15,00,000Apr 1By Machinery Disposal A/c2,00,000
July 1To Bank A/c6,00,000Dec 31By Balance c/d19,00,000
21,00,00021,00,000
2016
Jan 1To Balance b/d19,00,000

Provision for Depreciation Account:

Dr.Cr.
DateParticularsAmount ₹DateParticularsAmount ₹
20152015
Apr 1To Machinery Disposal A/c1,30,000Jan 1By Balance b/d5,50,000
Dec 31To Balance c/d7,50,000Dec 31By Depreciation A/c3,30,000
8,80,0008,80,000
2016
Jan 1By Balance b/d7,50,000
Exercise: Numerical Problems | Q: 8 | (Page 47)
For More Understanding

Explanation

This problem requires preparing Machinery Account and Provision for Depreciation Account with asset sale and purchase during the year. The key steps are: (1) Calculate accumulated depreciation on sold machinery from purchase date (Jan 1, 2012) to sale date (April 1, 2015) using 20% SLM = ₹1,30,000, (2) Determine book value (₹70,000) and profit on sale (₹5,000), (3) Calculate current year depreciation on all assets proportionately, (4) Transfer accumulated depreciation on sold asset from Provision account. The textbook answer confirms Profit on sale ₹5,000 and Machinery balance ₹19,00,000.

Solution Steps

  1. Step 1: Calculate accumulated depreciation on sold machinery: ₹2,00,000×20000 \times 20% × 3.25 years = ₹1,30,000

  2. Step 2: Calculate book value of sold machinery: ₹2,00,000 - ₹1,30,000 = ₹70,000

  3. Step 3: Calculate profit on sale: ₹75,000 - ₹70,000 = ₹5,000 (Profit)

  4. Step 4: Calculate depreciation for 2015: On remaining (₹2,60,000) + On sold for 3 months (₹10,000) + On new for 6 months (₹60,000) = ₹3,30,000

  5. Step 5: Prepare Machinery Account with opening balance, new purchase, and sale entry

  6. Step 6: Prepare Provision for Depreciation Account with opening balance, current year depreciation, and transfer of accumulated depreciation on sold machinery

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