Advertisements
Advertisements
Question
An asset is purchased on 1.1.2016 for ₹ 50,000. Depreciation is to be provided annually according to the straight-line method. The useful life of the asset is 10 years and its residual value is ₹ 10,000. Accounts are closed on 31st December every year. You are required to find out the rate of depreciation and give journal entries for first two years.
Advertisements
Solution
Original cost = ₹ 50,000
Residual value = ₹ 10,000
Estimated life = 10 years
Amount of depreciation = `("Original cost" - "Scrap value")/"Estimates life"`
`= (50,000 - 10,000)/10`
`= (40,000)/10`
= ₹ 4,000
Rate of depreciation = `"Amount of depreciation"/"Original cost" xx 100`
`= (4,000)/(50,000) xx 100`
= 8%
Journal entry
| Date | Particulars | J.F. | Debit ₹ | Credit ₹ |
| 1.1.2016 | Machinery A/c Dr. To Bank A/c (Machinery bought) |
50,000 | 50,000 | |
| 31.12.2016 | Depreciation A/c Dr. To Machinery A/c (Depreciation provided) |
4,000 | 4,000 | |
| 31.12.2016 | Profit and loss A/c Dr. To Depreciation A/c (Depreciation transferred to profit and loss A/c) |
4,000 | 4,000 | |
| 31.12.2017 | Depreciation A/c Dr. To Machinery A/c (Depreciation provided) |
4,000 | 4,000 | |
| 31.12.2017 | Profit and loss A/c Dr. To Depreciation A/c (Depreciation transferred to profit and loss A/c) |
4,000 | 4,000 |
APPEARS IN
RELATED QUESTIONS
Answer in One Sentence only:
What is Fixed Instalment Method?
Do you agree or disagree with the following statement:
The rate of depreciation depends upon the life of fixed asset.
State the limitations of straight-line method of depreciation.
A manufacturing company purchased on 1st April 2010, a plant and machinery for ₹ 4,50,000 and spent ₹ 50,000 on its installation. After having used it for three years, it was sold for ₹ 3,85,000. Depreciation is to be provided every year at the rate of 15% per annum on the fixed installment method. Accounts are closed on 31st March every year. Calculate profit or loss on sale of machinery.
An asset is purchased for ₹ 50,000. The rate of depreciation is 15% p.a. Calculate the annual depreciation for the first two years under the diminishing balance method.
Furniture costing ₹ 5,000 was purchased on 1.1.2016, the installation charges being ₹ 1,000. The furniture is to be depreciated @ 10% p.a. on the diminishing balance method. Pass journal entries for the first two years.
M/s Sitaram and Co Purchased a Machinery on 1st January 2016 for ₹ 2,00,000. The company provides depreciation @ 10% p.a. on Reducing Balance Method on 31st March every year. Calculate Written Down Value of Machinery as of 31st March 2017.
Sameer & Company, Mumbai purchased a Machine worth ₹ 2,00,000 on 1st April 2016. On 1st July 2017, the company purchased an additional Machine for ₹ 40,000.
On 31st March 2019, the company sold the Machine purchased on 1st July 2017 for ₹ 35,000. The company writes off depreciation at the rate of 10% on the original cost and the books of accounts are closed every year on 31st March.
Show the Machinery Account and Depreciation Account for the first three years ending 31st March 2016-17, 2017-18 and 2018-19
On 1st April 2015, Farid of Nasik purchased a Motor Car for ₹ 55,000. The scrap value of the Motor Car was estimated at ₹ 10,000 and its estimated life is 10 years. The Registration charge for the Motor Car was ₹ 5,000.
Show Motor Car Account for first four years, assuming that the books of accounts are closed on 31st March every year.
A factory’s machine remains idle for several months due to maintenance breakdowns. Which method ensures that depreciation is not overcharged during these idle periods?
