Page 104 - DEBK-XI(2020)

Depreciation 14.5

Notes:
1. Mach. I, stands for Machine I and Mach. II stands for Machine II and so on.
2. Calculation of Profit/Loss on Sale of Machine: `
Cost of Machine (1st April, 2010) (Mach. I, ` 30,000 × 1/3) 10,000
Less: Depreciation for 2010 (` 2,250 × 1/3) 750
Book value as on 1st January, 2011 9,250
Less: Depreciation for 2011 1,000
Book Value as on 1st January, 2012 8,250
Less: Sale Proceeds 3,000
Loss on Sale 5,250
3. A company purchased a machinery for ` 80,000 on 1st April, 2010 and
decided to write off at 10% annually on the Diminishing Balance Method. On
1st July, 2012 a part of the machinery valued in the books of the firm at ` 16,000
on 1st April, 2010 was sold for ` 10,000.
Show the Machinery Account in the books of the company for the years 2010, 2011
and 2012. Accounts are closed each year on 31st December.
Solution:
Dr. MACHINERY ACCOUNT Cr.
Date Particulars ` Date Particulars `
2010 2010
April 1 To Bank A/c 80,000 Dec. 31 By Depreciation A/c 6,000
Dec. 31 By Balance c/d 74,000
80,000 80,000
2011 2011
Jan. 1 To Balance b/d 74,000 Dec. 31 By Depreciation A/c 7,400
Dec. 31 By Balance c/d 66,600
74,000 74,000
2012 2012
Jan. 1 To Balance b/d 66,600 July 1 By Bank A/c—Sale 10,000
July 1 By Depreciation A/c (Note 1) 666
July 1 By Loss on Sale of Machinery A/c 2,654
(Profit and Loss A/c) (Note 1)
Dec. 31 By Depreciation A/c 5,328
(Unsold Machinery) (Note 2)
Dec. 31 By Balance c/d 47,952
66,600 66,600

Notes:
1. Calculation of Loss on Sale of Machinery: `
Book value of Machinery (1st April, 2010) 16,000
Less: Depreciation (2010) (` 16,000 × 10/100 × 9/12) 1,200
Book Value of Machinery (1st January, 2011) 14,800
Less: Depreciation (2011) (` 14,800 × 10/100) 1,480
Book Value of Machinery (1st January, 2012) 13,320
Less: Depreciation (2012) (` 13,320 × 10/100 × 6/12) 666
Book Value of Machinery (1st July, 2012) 12,654
Less: Sale Proceeds 10,000
Loss on Sale 2,654