Reliance Ltd. Purchased a second hand machine for Rs
56,000 on October 01, 2001 and spent Rs 28,000 on its overhaul and installation
before putting it to operation. It is expected that the machine can be sold for
Rs 6,000 at the end of its useful life of 15 years. Moreover an
estimated cost of Rs 1,000 is expected to be incurred to recover the salvage
value of Rs 6,000. Prepare machine account and Provision for depreciation
account for the first three years charging depreciation by fixed instalment
Method. Accounts are closed on December 31, every year.
Reliance Ltd. Purchased a second hand machine for Rs 56,000 on October 01, 2001 and spent Rs 28,000 on its overhaul and installation before putting it to operation. It is expected that the machine can be sold for Rs 6,000 at the end of its useful life of 15 years. Moreover an estimated cost of Rs 1,000 is expected to be incurred to recover the salvage value of Rs 6,000. Prepare machine account and Provision for depreciation account for the first three years charging depreciation by fixed instalment Method. Accounts are closed on December 31, every year.
|
Books of Reliance Ltd. |
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Machinery Account |
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|
Dr. |
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|
|
|
|
|
Cr. |
|
Date |
Particulars |
J.F. |
Amount Rs |
Date |
Particulars |
J.F. |
Amount Rs |
|
2001 |
|
|
|
2001 |
|
|
|
|
Oct.01 |
Bank |
|
84,000 |
|
|
|
|
|
|
|
|
|
Dec.31 |
Balance c/d |
|
84,000 |
|
|
|
|
84,000 |
|
|
|
84,000 |
|
|
|
|
|
|
|
|
|
|
2002 |
|
|
|
2002 |
|
|
|
|
Jan.01 |
Balance b/d |
|
84,000 |
|
|
|
|
|
|
|
|
|
Dec.31 |
Balance c/d |
|
84,000 |
|
|
|
|
84,000 |
|
|
|
84,000 |
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
|
2003 |
|
|
|
|
Jan.01 |
Balance b/d |
|
84,000 |
|
|
|
|
|
|
|
|
|
Dec.31 |
Balance c/d |
|
84,000 |
|
|
|
|
84,000 |
|
|
|
84,000 |
|
|
|
|
|
|
|
|
|
|
Provision for Depreciation Account |
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|
Dr. |
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|
Cr. |
|
Date |
Particulars |
J.F. |
Amount Rs |
Date |
Particulars |
J.F. |
Amount Rs |
|
2001 |
|
|
|
||||
|
Dec.31 |
Depreciation |
|
1,316 |
||||
|
2001 |
|
|
|
||||
|
Dec.31 |
Balance c/d |
|
1,316 |
|
|
|
|
|
|
|
|
1,316 |
|
|
|
1,316 |
|
|
|
|
|
|
|
|
|
|
2002 |
|
|
|
||||
|
Jan.01 |
Balance b/d |
|
1,316 |
||||
|
2002 |
|
|
|
Dec.31 |
Depreciation |
|
5,267 |
|
Dec.31 |
Balance c/d |
|
6,583 |
||||
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|
|
|
6,583 |
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|
6,583 |
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|
2003 |
|
|
|
||||
|
Jan.01 |
Balance b/d |
|
6,583 |
||||
|
2003 |
|
|
|
Dec.31 |
Depreciation |
|
5,267 |
|
Dec.31 |
Balance c/d |
|
11,850 |
||||
|
|
|
|
11,850 |
|
|
|
11,850 |
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
Jan.01 |
Balance b/d |
|
11,850 |
Working Note:
Calculation of annual depreciation
|
Depreciation (p.a.) |
= |
(56,000 + 28,000 – 6,000 + 1,000) |
|
15 years |
||
|
|
= |
Rs 5,267 per annum |
Note: As per the solution, the balance of provision for depreciation account, as on Jan.01, 2004 is Rs 11,850; whereas, as per the book, it is Rs 18,200.
However, if we ignore the scrap value and prepare provision for depreciation for 4 years, the answer would match to that of the book.