Advertisements
Advertisements
प्रश्न
What are the effects of depreciation on profit and loss account and balance sheet?
उत्तर
The effects of depreciation on Profit and Loss Account are as follows:
1. An increase in depreciation will be debited in the profit and loss account which reduces net profit.
2. Hence total expenses increase which leads to an excess of debit over credit balance.
The effects of depreciation on Balance Sheet are as follows:
1. The original cost or book value of the concerned asset gets reduced.
2. The overall balance of asset’s column in the balance sheet gets reduced.
APPEARS IN
संबंधित प्रश्न
Describe in detail two methods of recording depreciation. Also give the necessary journal entries
On April 01, 2010, Bajrang Marbles purchased a Machine for ₹ 2,80,000 and spent ₹ 10,000 on its carriage and ₹ 10,000 on its installation. It is estimated that its working life is 10 years and after 10 years its scrap value will be ₹ 20,000.
(a) Prepare Machine account and Depreciation account for the first four years by providing depreciation on straight line method. Accounts are closed on March 31st every year.
(b) Prepare Machine account, Depreciation account and Provision for depreciation account (or accumulated depreciation account) for the first four years by providing depreciation using straight line method accounts are closed on March 31st every year.
Berlia Ltd. Purchased a second-hand machine for ₹ 56,000 on July 01, 2015 and spent ₹ 24,000 on its repair and installation and ₹ 5,000 for its carriage. On September 01, 2016, it purchased another machine for ₹ 2,50,000 and spent ₹ 10,000 on its installation.
(a) Depreciation is provided on machinery @10% p.a. on original cost method annually on December 31. Prepare machinery account and depreciation account from the year 2015 to 2018.
(b) Prepare machinery account and depreciation account from the year 2015 to 2018, if depreciation is provided on machinery @10% p.a. on written down value method annually on December 31.
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.
(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.
Azad Ltd. purchased furniture on October 01, 2014 for ₹ 4,50,000. On March 01, 2015 it purchased another furniture for ₹ 3,00,000. On July 01, 2016, it sold off the first furniture purchased in 2014 for ₹ 2,25,000. Depreciation is provided at 15% p.a. on written down value method each year. Accounts are closed each year on March 31. Prepare furniture account, and accumulated depreciation account for the years ended on March 31, 2015, March 31, 2016 and March 31, 2017. Also give the above two accounts if furniture disposal account is opened.
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.
Saraswati Ltd. purchased a machinery costing ₹ 10,00,000 on January 01, 2011. A new machinery was purchased on 01 May, 2012 for ₹ 15,00,000 and another on July 01, 2014 for ₹ 12,00,000. A part of the machinery which originally cost ₹ 2,00,000 in 2011 was sold for ₹ 75,000 on April 30, 2014. Show the machinery account, provision for depreciation account and machinery disposal account from 2011 to 2015 if depreciation is provided at 10% p.a. on original cost and account are closed on December 31, every year.
On October 01, 2010, a Truck was purchased for ₹ 8,00,000 by Laxmi Transport Ltd. Depreciation was provided at 15% p.a. on the diminishing balance basis on this truck. On December 31, 2013 this Truck was sold for ₹ 5,00,000. Accounts are closed on 31st March every year. Prepare a Truck Account for the four years.
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.
On January 01, 2011, Satkar Transport Ltd, purchased 3 buses for ₹ 10,00,000 each. On July 01, 2013, one bus was involved in an accident and was completely destroyed and ₹ 7,00,000 were received from the Insurance Company in full settlement. Depreciation is written off @15% p.a. on diminishing balance method. Prepare bus account from 2011 to 2014. Books are closed on December 31 every year.
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.
A Noida based Construction Company owns 5 cranes and the value of this asset in its books on April 01, 2017 is ₹ 40,00,000. On October 01, 2017 it sold one of its cranes whose value was ₹ 5,00,000 on April 01, 2017 at a 10% profit. On the same day it purchased 2 cranes for ₹ 4,50,000 each. Prepare cranes account. It closes the books on December 31, and provides for depreciation on 10% written down value.
On January 01, 2014, a Limited Company purchased machinery for ₹ 20,00,000. Depreciation is provided @15% p.a. on diminishing balance method. On March 01, 2016, one fourth of machinery was damaged by fire and ₹ 40,000 were received from the insurance company in full settlement. On September 01, 2016 another machinery was purchased by the company for ₹ 15,00,000. Write up the machinery account from 2010 to 2013. Books are closed on December 31, every year.
A Plant was purchased on 1st July, 2015 at a cost of ₹ 3,00,000 and ₹ 50,000 were spent on its installation. The depreciation is written off at 15% p.a. on the straight line method. The plant was sold for ₹ 1,50,000 on October 01, 2017 and on the same date a new Plant was installed at the cost of ₹ 4,00,000 including purchasing value. The accounts are closed on December 31 every year.
Show the machinery account and provision for depreciation account for 3 years.
An extract of Trial balance from the books of Tahiliani and Sons Enterprises on Mar 31 2017 is given below:
| Name of the Account | Debit Amount ₹ |
Credit Amount ₹ |
| Sundry debtors | 50,000 | |
| Bad debts | 6,000 | |
| Provision for doubtful debts | 4,000 |
Additional Information:
- Bad Debts proved bad but not recorded amounted to ₹ 2,000.
- Provision is to be maintained at 8% of Debtors.
Give necessary accounting entries for writing off the bad debts and creating the provision for doubtful debts account. Also show the necessary accounts.
The following information are extract from the Trial Balance of M/s Nisha traders on 31 March 2017.
| Sundry Debtors | ₹ 80,500 |
| Bad debts | ₹ 1,000 |
| Provision for bad debts | ₹ 5,000 |
| Additional Information | |
| Bad Debts | ₹ 500 |
Provision is to be maintained at 2% of Debtors.
Prepare bad debts account, Provision for bad debts account and profit and loss account.
