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Question
Furniture costing ₹ 5,000 was purchased on 1.1.2016, the installation charges being ₹ 1,000. The furniture is to be depreciated @ 10% p.a. on the diminishing balance method. Pass journal entries for the first two years.
Solution
| Date | Particulars | ₹ |
| 01.01.2016 | Furniture purchased | 5,000 |
| Add: Installation charges | 1,000 | |
| Total cost or original cost | 6000 | |
| 31.12.2016 | Less: Depreciation 10% | 600 |
| 01.01.2017 | Book Value | 5,400 |
| 31.12.2017 | Less: Depreciation 10% | 540 |
| 01.01.2018 | Book value | 4,860 |
Journal Entries
| Date | Particulars | L.F. | Dr. (₹) | Cr. (₹) |
| 1.1.2016 | Furniture A/c Dr. To Bank A/c [Furniture bought] |
5,000 | 5,000 | |
| 1.1.2016 | Furniture A/c Dr. To Bank A/c [Installation charges cost incurred on purchases of furniture] |
1,000 | 1,000 | |
| 31.12.2016 | Depreciation A/c Dr. To Furniture A/c [Depreciation provided] |
600 | 600 | |
| 31.12.2016 | Profit and loss A/c Dr. To Depreciation A/c [Depreciation Transferred to P/C A/c] |
600 | 600 | |
| 31.12.2017 | Depreciation A/c Dr. To Furniture A/c [Depreciation provided] |
540 | 540 | |
| 31.12.2017 | Profit and loss A/c Dr. To Depreciation A/c [Depreciation Transferred to P/C A/c] |
540 | 540 |
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