Question

On July 01, 2010, Ashok Ltd. Purchased a Machine for ₹ 1,08,000 and spent ₹ 12,000 on its installation. At the time of purchase it was estimated that the effective commercial life of the machine will be 12 years and after 12 years its salvage value will be ₹ 12,000.
Prepare machine account and depreciation Account in the books of Ashok Ltd. For first three years, if depreciation is written off according to straight line method. The accounts are closed on December 31^st, every year.

Answer 1

Dr.	Books of Ashok Ltd. Machinery Account						Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2010				2010
Jul.01	Bank		1,20,000	Dec.31	Depreciation		4,500
				Dec.31	Balance c/d		1,15,500
			1,20,000				1,20,000
2011
Jan.01	Balance b/d		1,15,500	Dec.3	Depreciation		9,000
				Dec.31	Balance c/d		1,06,500
			1,15,000				1,15,500
2012				2012
Jan.01	Balance b/d		1,06,500	Dec.31	Depreciation		9,000
				Dec.31	Balance c/d		97,500
			1,06,500				1,06,500
2013
Jan.01	Balance b/d		97,500

 

Dr.	Depreciation Account						Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2010				2010
Dec.31	Machinery		4,500	Dec.31	Profit and Loss		4,500
			4,500				4,500
2011				2011
Dec.31	Machinery		9,000	Dec.31	Profit and Loss		9,000
			9,000				9,000
2012				2012
Dec.31	Machinery		9,000	Dec.3	Profit and Loss		9,000
			9,000				9,000

Working Note:

Calculation of annual depreciation

Depreciation (p.a) = `((1","08","000 + 12","000 - 12","000))/(12  "years")`

= ₹ 9,000 per annum