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

Answer 1

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.		40,000
	To Bank A/c			40,000
	(Being Machinery bought and other expenses)
31.12.2016	Profit and loss A/c   ...Dr.		8,000
	To Depreciation A/c			8,000
	(Being Depreciation transferred to profit and loss A/c)
31.12.2017	Depreciation A/c    ...Dr.		8,000
	To Machinery A/c			8,000
	(Being Depreciation Provided)
31.12.2017	Profit and loss A/c    ...Dr.		8,000
	To Depreciation A/c			8,000
	(Being Depreciation transferred to profit and loss A/c)

 

Dr.	Machinery A/c						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