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Question
On 1st April 2015, Suman Traders purchased Machinery for ₹ 30,000. On 1st Oct. 2015, they purchased further Machinery costing ₹ 20,000.
On 1st Oct. 2016, they sold the Machine purchased on 1st April 2015 for ₹ 18,000 and brought another Machine for ₹ 15,000 on the same date.
Depreciation is provided on Machinery @ 20% p.a. on the Diminishing Balance Method and the financial year closes on 31st March every year.
Prepare the Machinery Account and Depreciation Account for the year 2015-16, 2016-17, and 2017-18.
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Solution
In the books of Suman Traders
| Dr. | Machinery Account | Cr. | |||||
| Date | Particulars | J.F. | Amt ₹ | Date | Particulars | J.F. | Amt ₹ |
| 2015 | 2016 | ||||||
| Apr. 1 | To Cash/Bank A/c | 30,000 | Mar. 31 | By Depreciation A/c (6,000 + 2,000) | 8,000 | ||
| Oct. 1 | To Cash/Bank A/c | 20,000 | Mar. 31 | By Balance c/d | 42,000 | ||
| 50,000 | 50,000 | ||||||
| 2016 | 2016 | ||||||
| Apr. 1 | To Balance b/d | 42,000 | Oct. 1 | By Cash/Bank A/c | 18,000 | ||
| Oct. 1 | To Cash/Bank A/c | 15,000 | Oct. 1 | By Depreciation A/c | 2,400 | ||
| Oct. 1 | By Profit and loss A/c (Loss on sale) | 3,600 | |||||
| 2017 | |||||||
| Mar. 31 | By Depreciation A/c | 5,100 | |||||
| Mar. 31 | By Balance c/d | 27,900 | |||||
| 57,000 | 57,000 | ||||||
| 2017 | 2018 | ||||||
| Apr. 1 | To Balance b/d | 27,900 | Mar. 31 | By Depreciation A/c | 5,580 | ||
| Mar. 31 | By Balance c/d | 22,320 | |||||
| 27,900 | 27,900 | ||||||
| 2018 | |||||||
| Apr. 1 | To Balance b/d | 22,320 | |||||
| Dr. | Depreciation Account | Cr. | |||||
| Date | Particular | J.F. | Amt ₹ | Date | Particular | J.F. | Amt ₹ |
| 2016 | 2016 | ||||||
| Mar. 31 | To Machinery A/c | 8,000 | Mar. 31 | By Profit and Loss A/c | 8,000 | ||
| 8,000 | 8,000 | ||||||
| 2016 | 2017 | ||||||
| Oct. 1 | To Machinery A/c | 2,400 | Mar. 31 | By Profit and Loss A/c | 7,500 | ||
| 2017 | |||||||
| Mar. 31 | To Machinery A/c | 5,100 | |||||
| 7,500 | 7,500 | ||||||
| 2018 | 2018 | ||||||
| Mar. 31 | To Machinery A/c | 5,580 | Mar. 31 | By Profit and Loss A/c | 5,580 | ||
| 5,580 | 5,580 | ||||||
Working Notes:
1. Calculation of Profit or loss on sale of machine:
Original cost on 01.04.2015 = ₹ 30,000
Less: Depreciation for 2015-16 (12 months) = ₹ 6,000
W.D.V. on 01.04.2016 = ₹ 24,000
Less: Depreciation for 2016-17 (6 months) = ₹ 2,400
W.D.V. on date of sale = ₹ 21,600
Less: Selling price = ₹ 18,000
∴ Loss on sale of machine = ₹ 3,600
2. Calculation of Depreciation for 2016-17:
(a) Opening balance on 01.04.2016 = ₹ 42,000
Less: W.D.V. of machine sold on 01.04.2016 = ₹ 24,000
18,000 – 20% = ₹ 3,600
(b) Purchase of machine on 01.10.2016 – 15,000 – 20% – 6months = 3,600 + 1,500 = ₹ 5,100
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