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Question
From the following particulars, give journal entries for 2 years and prepare machinery account under straight-line method of providing depreciation:
Machinery was purchased on 1.1.2016
Price of the machine ₹ 36,000
Freight charges ₹ 2,500
Installation charges ₹ 1,500
Life of the machine 5 years
Solution
Calculation of Asset of depreciation:
Original cost = Price of the machine + Freight charges + Installation charges
= 36,000 + 2,500 + 1,500
= ₹ 40,000
Amount of depreciation = `("Original cost" - "Scrap value")/"Estimates life"`
`= (40,000 - 0)/(5 "years")`
= ₹ 8,000
Journal Entries for 2 years
| Date | Particulars | J.F. | Debit ₹ | Credit ₹ |
| 1.1.2016 | Machinery A/c Dr. To bank A/c (Machinery bought) |
36,000 | 36,000 | |
| 1.1.2016 | Machinery A/c Dr. To bank A/c (Freight charges and installation charges, cost includes on purchased of machinery) |
4,000 | 4,000 | |
| 31.12.2016 | Depreciation A/c Dr. To Machinery A/c (Depreciation Provided) |
8,000 | 8,000 | |
| 31.12.2016 | Profit and loss A/c Dr. To Depreciation A/c (Depreciation transferred to profit and loss A/c) |
8,000 | 8,000 | |
| 31.12.2017 | Depreciation A/c Dr. To Machinery A/c (Depreciation Provided) |
8,000 | 8,000 | |
| 31.12.2017 | Profit and loss A/c Dr. To Depreciation A/c (Depreciation transferred to profit and loss A/c) |
8,000 | 8,000 |
Machinery Account
| Dr. | Cr. | ||||||
| Date | Particulars | J.F. | Amount ₹ | Date | Particulars | J.F. | Amount ₹ |
| 1.1.2016 | To Bank A/c | 36,000 | 31.12.2016 | By Depreciation | 8,000 | ||
| 7.1.2017 | To Bank A/c | 4,000 | 31.12.2016 | To Balance c/d | 32,000 | ||
| 40,000 | 40,000 | ||||||
| 1.1.2018 | To Balance b/d | 32,000 | 31.12.2017 | By Depreciation | 8,000 | ||
| 31.12.2017 | To Balance c/d | 24,000 | |||||
| 32,000 | 32,000 | ||||||
| 1.1.2018 | To Balance | 24,000 | |||||
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