A firm purchased a second-hand machinery on April, 1,2023 for 30,00,000, subsequent to which - 4,00,000 were spent on its repairs and installation.…

CA Foundation · Accounting · RTP · May 2026
A firm purchased a second-hand machinery on April, 1,2023 for 30,00,000, subsequent to which - 4,00,000 were spent on its repairs and installation. On October, 1,2023, another machinery was purchased for 18,00,000 and the cost of installing the machine in a new plant was - 40,000. The firm also shifted the machinery purchased on April, 1,2023 to the new plant and incurred freight of 20,000 and loading charges of 30,000. They adopted a policy of charging depreciation @12% per annum on the diminishing balance method. On April, 1,2025, it was decided to change the method and rate of depreciation to the straight line basis. On this date, the remaining useful life was assessed as 5 years for both the machines purchased, with no scrap value. On October, 1,2025, the first machine became outdated and was sold for 5,00,000. On the same date, another machinery was purchased for 17,00,000. The estimated useful life of the machine is 10 years and the residual value is 60,000. You are required to prepare the Machinery Account for the year ending March, 31,2026.

Suggested Answer and Working Notes:

Machinery Account Date Particulars Amount (₹) Date Particulars Amount (₹) 2025 Apr.1 To Bal b/d - Machine 1 26,32,960 2025 Oct.1 By Depreciation - on machinery 1 sold 2,63,296 Machine 2 15,22,048 Oct.1 By Bank – machinery 1 sold 5,00,000 41,55,008 Oct.1 By Profit & Loss – Loss on Sale of machinery (WN.1) 18,69,664 Oct.1 To Bank A/c (Machine 3) 17,00,000 2024 Mar.31 By Depreciation (WN.2) Machine 2 3,04,410 Machine 3 82,000 3,86,410 Mar.31 By bal c/d 28,35,638 58,55,008 58,55,008 Working Note: 1. Calculation of depreciation and Profit/loss on sale: Machine 1 purchased on April, 1,2023 (₹) Machine 2 purchased on Oct, 1,2023 (₹) Total (₹) Cost of Purchase 30,00,000 18,00,000 4,00,000 40,000 Total Cost 34,00,000 18,40,000 Less: Depreciation @12% Machine 1 (12 months) (₹ 4,08,000) Machine 2 (6 months) (₹ 1,10,400) 5,18,400 W.D.V. on 31-3-2024 29,92,000 17,29,600 Less: Depreciation @12% (₹ 3,59,040) (₹ 2,07,552) 5,66,592 W.D.V. on 31-3-2025 26,32,960 15,22,048 Less: Depreciation on SLM Basis (WN.2) (₹ 2,63,296) (₹ 3,04,410) 5,67,706 23,69,664 12,17,638 Less: Sale proceeds on 1-10-2025 (₹ 5,00,000) Loss on sale of machinery 18,69,664 2. Calculation of Depreciation on the basis of Straight-line method with effect from April, 1,2023 Machine 1 (purchased on 1st April, 2023) = 34,00,000 -4,08,000 -3,59,040 = 26,32,960/5 = 5,26,592 /2 = 2,63,296Machine 2 (purchased on 1st Oct, 2023) = 18,40,000 - 1,10,400 - 2,07,552 = 15,22,048 /5 = 3,04,410Machine 3 (purchased on 1st Oct, 2025) = (₹ 17,00,000 - 60,000) ÷₹ 10 = 1,64,000 /2 = 82,000 Note: Freight and loading charges incurred on Machinery purchased on 1st April, 2025 is to be excluded from the cost of machinery since this cost is incurred only for shifting the machinery to the new plant and does not increase the operating capacity of the machinery

Topics: Depreciation and Amortisation

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