Question

On July 01, 2011 Ashwani purchased a machine for ₹ 2,00,000 on credit. Installation expenses ₹ 25,000 are paid by cheque. The estimated life is 5 years and its scrap value after 5 years will be ₹ 20,000. Depreciation is to be charged on straight-line basis. Show the journal entry for the year 2011 and prepare necessary ledger accounts for first three years.

Answer 1

Books of Ashwani Journal
Date	Particulars	L.F.	Debit Amount ₹	Credit Amount ₹
2011 Jul.01	Machinery A/c Dr.		2,25,000
	To Creditors for Machinery A/c			2,00,000
	To Bank A/c			25,000
	(Machinery bought on credit and ₹ 25,000 paid for installation through cheque)
2011 Dec.31	Depreciation A/c Dr.		20,500
	To Machinery A/c			20,500
	(Depreciation charged on Machinery)
2011 Dec.31	Profit and Loss A/c Dr.		20,500
	To Depreciation A/c			20,500
	(Depreciation transferred to Profit and Loss Account)
2012 Dec.31	Depreciation A/c Dr.		41,000
	To Machinery A/c			41,000
	(Depreciation charged on Machinery)
2012 Dec.31	Profit and Loss A/c Dr.		41,000
	To Depreciation A/c			41,000
	(Depreciation transferred to Profit and Loss Account)
2013 Dec.31	Depreciation A/c Dr.		41,000
	To Machinery A/c			41,000
	(Depreciation charged on Machinery)
2013 Dec.31	Profit and Loss A/c Dr.		41,000
	To Depreciation A/c			41,000
	(Depreciation transferred to Profit and Loss Account)

 

Dr.	Ledger Machinery Account						Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2011				2011
Jul.01	Creditors for machinery		2,00,000	Dec.31	Depreciation		20,500
Jul.01	Bank		25,000	Dec.31	Balance c/d		2,04,500
			2,25,000				2,25,000
2012				2012
Jan.01	Balance b/d		2,04,500	Dec.31	Depreciation		41,000
				Dec.31	Balance c/d		1,63,500
			2,04,500				2,04,500
2013				2013
Jan.01	Balance c/d		1,63,500	Dec.31	Depreciation		41,000
				Dec.31	Balance c/d		1,22,500
			1,63,500				1,63,500

Working Note:

Calculation of annual depreciation 

Depreciation (p.a.) = `((2","00","000 + 25","000 - 20","000))/5`

= ₹ 41,000 per annum