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Question
On 1st January 2017 ‘Sai Industries, Nagpur’ purchased a Machine costing ₹ 1,65,000 and spent ₹ 15,000 for its installation charges. The estimated life of the Machine is to be 10 years and the scrap value at the end of its life would be ₹ 30,000. On 1st October 2018, the entire Machine was sold for ₹ 1,50,000.
Show Machinery Account, Depreciation Account, for the years 2016-17, 2017-18, and 2018-19 assuming that the accounts are closed on 31st March every year.
Solution
In the books of Sai Industries, Nagpur
| Dr. | Machinery Account | Cr. | |||||
| Date | Particulars | J.F. | Amt ₹ | Date | Particulars | J.F. | Amt ₹ |
| 2017 | 2017 | ||||||
| Jan. 1 | To Cash/Bank A/c | 1,80,000 | Mar. 31 | By Depreciation A/c | 3,750 | ||
| Mar. 31 | By Balance c/d | 1,76,250 | |||||
| (1,65,000 + 15,000) | 1,80,000 | 1,80,000 | |||||
| 2017 | 2018 | ||||||
| Apr. 1 | To Balance b/d | 1,76,250 | Mar. 31 | By Depreciation A/c | 15,000 | ||
| Mar. 31 | By Balance c/d | 1,61,250 | |||||
| 1,76,250 | 1,76,250 | ||||||
| 2018 | 2018 | ||||||
Apr. 1 |
To Balance b/d | 1,61,250 | Oct. 1 | By Cash/Bank A/c | 1,50,000 | ||
| Oct. 1 | By Depreciation A/c | 7,500 | |||||
| Oct. 1 | By Profit and Loss A/c (Loss on sale) | 3,750 | |||||
| 1,61,250 | 1,61,250 | ||||||
| Dr. | Depreciation Account | Cr. | |||||
| Date | Particulars | J.F. | Amt ₹ | Date | Particulars | J.F. | Amt ₹ |
| 2017 | 2017 | ||||||
| Mar. 31 | To Machinery A/c | 3,750 | Mar. 31 | By Profit and Loss A/c | 3,750 | ||
| 3,750 | 3,750 | ||||||
| 2018 | 2018 | ||||||
| Mar. 31 | To Machinery A/e | 15,000 | Mar. 31 | By Profit and Loss A/c | 15,000 | ||
| 15,000 | 15,000 | ||||||
| 2018 | 2019 | ||||||
| Oct. 1 | To Machinery A/c | 7,500 | Mar. 31 | By Profit and Loss A/c | 7,500 | ||
| 7,500 | 7,500 | ||||||
Working Notes:
1. `"Calculation of Depreciation per annum:
Depreciation" = "Original cost of an asset (−) Scrapvalue"/ "Estimated life of asset in years"`
= `"1,80,000 − 30,000"/10`
= `"1,50,000"/10`
= ₹ 15,000 p.a.
2. Calculation of Profit or loss on sale of machine:
Original cost 01.01.2017 = ₹ 1,80,000
Less: Depreciation for 2016-17 (3 months) = ₹ 3,750
W.D.V. on 01-04-2017 = ₹ 1,76,250
Less: Depreciation for 2019-18 (12 months) = ₹ 15,000
W.D.V. on 01.04.2018 = ₹ 1,61,250
Less: Depreciation for 2018-19 (6 months) = ₹ 7,500
W.D.V. on date of sale = ₹ 1,53,750
Less: Selling price = ₹ 1,50,000
∴ Loss on sale of machine = ₹ 3,750
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