Question

Shubhangi Trading Company of Dombivli purchased Machinery for ₹ 86,000 on 1st January 2016 and immediately spent ₹ 4,000 on its fixation and erection. On 1st October 2016 additional Machinery costing ₹ 40,000 was purchased.

On 1st October 2017, the Machinery purchased on 1st January 2016 became obsolete and was sold for ₹ 70,000. On 1st July 2017, a new Machine was also purchased for ₹ 45,000.

Depreciation was provided annually on 31st March at the rate of 12% per annum on the fixed installment method.
Prepare Machinery Account for three years and pass Journal Entries for the Third year i.e. 2017-2018.

Answer 1

In the books of Shubhangi Trading company, Dombivli
Dr.	Machinery Account						Cr.
Date	Particular	J.F.	Amt ₹	Date	Particular	J.F.	Amt ₹
2016				2016
Jan. 1	To Cash/Bank A/c		90,000	Mar. 31	By Depreciation A/c		2,700
	(86,000 + 4,000)			Mar. 31	By Balance c/d		87,300
			90,000				90,000
2016				2017
Apr. 1	To Balance b/d		87,300	Mar. 31	By Depreciation A/c (10,800 + 2400)		13,200
Oct. 1	To Cash/Bank A/c		40,000	Mar. 31	By Balance c/d		1,14,100
			1,27,300				1,27,300
2017				2017
Apr. 1	To Balance b/d		1,14,100	Oct. 1	By Cash/Bank A/c		70,000
Jul. 1	To Cash/Bank A/c		45,000	Oct. 1	By Depreciation A/c		5,400
				Oct. 1	By Profit and Loss A/c (Loss on sale)		1,100
				2017
				Mar. 31	By Depreciation A/c (4,800 + 4,050)		8,850
				Mar. 31	By Balance c/d		73,750
			1,59,100				1,59,100
2018
Apr. 1	To Balance b/d		73,750

 

Journal of Shubhangi Trading Company
Date	Particulars	L.F.	Debit ₹	Credit ₹
2017 July. 1	Machinery A/c     ...Dr.		45,000
	To Cash/Bank A/c			45,000
	(Being purchase of machinery)
Oct. 1	Cash/Bank A/c    ...Dr.		70,000
	To Machinery A/c			70,000
	(Being machinery sold)
Oct. 1	Depreciation A/c     ...Dr.		5,400
	To Machinery A/c			5,400
	(Being depreciation charged on the machinery sold)
Oct. 1	Profit and Loss A/c    ...Dr.		1,100
	To Machinery A/c			1,100
	(Being loss on sale of machinery transferred to P&L A/c)
2018 Mar. 31	Depreciation A/c      ...Dr.		8,850
	To Machinery A/c			8,850
	(Being depreciation charged at the end of the year)
Mar. 31	Profit and Loss A/c     ...Dr.		14,250
	To Depreciation A/c			14,250
	(Being balance in Depreciation A/c transferred to P&L A/c)
	Total ₹		1,44,600	1,44,600

Working Note:

Calculation of Profit or loss on sale of machine:

Original cost on 01 Jan 2016 = ₹ 90,000

Less: Depreciation for 2015-16 (3 months)

`90,000 xx 12/100 xx 3/12` = ₹ 2,700

W.D.V. on 01 Apr 2016 = ₹ 90,000 − ₹ 2,700 = ₹ 87,300

Less: Depreciation for 2016-17 (12 months)

`90,000 xx 12/100` = ₹ 10,800

W.D.V. on 01 Apr 2016 = ₹ 76,500

Less: Depreciation for 2017-18 (6 months)

`90,000 xx 12/100 xx 6/12` = ₹ 5,400

Depreciation = `40,000 xx 12/100 = 4800`

1st july 2017 to 31 march 2018 (45,000 9 month)

`45,000 xx 12/100 xx 9/12 = 4050`

W.D.V. on date of sale = 71,100

Less: Selling price = 70,000

∴ Loss on sale of machine = ₹ 1,100