Question

M/s. Ram Brothers, Pune purchased machinery worth Rs 1,25,000 on 1st April, 2006. On 1st October, 2006 they purchased additional machinery worth Rs 50,000.

On 1st October, 2008, the machinery purchased on 1st April, 2006 was sold by them at 20% below its written down value and on the same date, new machinery worth Rs 75,000 was purchased.

Depreciation was charged on 31st March every year @ 20% p.a. under diminishing balance method.

Prepare Machinery Account and Depreciation Account for the years 2006-07, 2007-08 and 2008-09.

Answer 1

M/s. Ram Brothers

Machinery Account

Date		Particulars			Amount (Rs)	Date	Particulars			Amount (Rs)
2006						2007
Apr.01		Bank A/c (M1)			1,25,000	Mar.31	Depreciation A/c
Oct.01		Bank A/c (M2)			50,000		M1	25,000
							M2	5,000		30,000
							Balance c/d
							M1	1,00,000
							M2	45,000		1,45,000
					1,75,000					1,75,000
2007						2008
Apr.01		Balance b/d				Mar.31	Depreciation A/c
		M1	1,00,000				M1		20,000
		M2	45,000		1,45,000		M2		9,000	29,000
							Balance c/d
							M1		80,000
							M2		36,000	1,16,000
					1,45,000					1,45,000
2008						2008
Apr.01		Balance b/d				Oct.1	Depreciation A/c (on M1 for 6 months)			8,000
		M1		80,000			Bank A/c (Sale of M1)			57,600
		M2		36,000	1,16,000		Profit and Loss A/c (Loss on Sale)			14,400
Oct.01		Bank A/c (M3)			75,000	2009
						Mar.31	Depreciation A/c
							M2	7,200
							M3	7,500		14,700
							Balance c/d
							M2	28,800
							M3	67,500		96,300
					1,91,000					1,91,000

Depreciation Account

Date	Particulars	Amount (Rs)	Date		Particulars	Amount (Rs)
2007			2007
Mar.31	Machinery A/c	30,000	Mar.31		Profit and Loss A/c	30,000
		30,000				30,000
2008			2008
Mar.31	Machinery A/c	29,000	Mar.31		Profit and Loss A/c	29,000
		29,000				29,000
2009			2009
Mar.31	Machinery A/c (8,000 + 14,700)	22,700	Mar.31		Profit and Loss A/c	22,700
		22,700				22,700

• WN1 Calculation of Profit or Loss on Sale

Particulars	Amount
Value of M1 as on Apr. 01, 2009	80,000
Less: Depreciation for 6 months	8,000
Value of M1 as on Sept. 30, 2009	72,000
Less: Sale Value [72,000 – (72,000 × 20%)]	57,600
Loss on Sale	14,400

• WN2 Calculation of Depreciation

Depriciation on M1	Depriciation on M2	Depriciation on M3
\[\begin{array}{l}For\ 2006 - 07 \\ 1, 25, 000 \times \frac{20}{100} = Rs25, 000 \\ For\ 2007 - 08 \\ 1, 00, 000 \times \frac{20}{100} = Rs20, 000 \\ For\ 2008 - 09 \\ 80, 000 \times \frac{20}{100} \times \frac{6}{12}\end{array}\] \[ = Rs8, 000\]	\[\begin{array}{l}For\ 2006 - 07 \\ 50, 000 \times \frac{20}{100} \times \frac{6}{12} \\ = Rs5, 000 \\ For\ 2007 - 08 \\ 45, 000 \times \frac{20}{100} = Rs9, 000 \\ For\ 2008 - 09\end{array}\] \[36, 000 \times \frac{20}{100} = Rs7, 200\]	\[\begin{array}{l}For\ 2008 - 09 \\ 75, 000 \times \frac{20}{100} \times \frac{6}{12}\end{array}\] \[ = Rs 7, 500\]