A firm purchased a second -hand machinery on April, 1,2021 for 15,00,000 subsequent to which - 2,00,000 were spent on its repairs and installation.…

CA Foundation · Accounting · PYQS · January 2025
A firm purchased a second -hand machinery on April, 1,2021 for 15,00,000 subsequent to which - 2,00,000 were spent on its repairs and installation. On October, 1,2021 another machinery was purchased for 9,00,000 and cost of installing the machine in a new plant is 20,000. The firm also shifted the machinery purchased on April, 1,2021 to the new plant and incurred freight of 10,000. They adopted a policy of charging depreciation @12% per annum on diminishing balance method. On April, 1,2023 it was decided to change the method and rate of depreciation to 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 On October, 1,2023 the first machine become outdated and sold for 2,50,000. On the same date, another machinery was purchased for 8,50,000. The estimated useful life of the machine is 10 years and residual value is 30,000. You are required to prepare the machinery account for the year ending March, 31,2024.

Suggested Answer and Working Notes:

Machinery Account Date Particulars Amount (₹) Date Particulars Amount (₹) 2023 April, 1 To Bal b/d - Machine 1 Machine 2 13,16,480 7,61,024 20,77,504 2023 Oct.1 By Depreciation - on machinery 1 sold 1,31,648 Oct.1 To Bank A/c (Machine 3) 8,50,000 Oct.1 By Bank – machinery 1 sold 2,50,000 Oct.1 By Profit & Loss – Loss on Sale of machinery (WN.1) 9,34,832 2024 Mar.31 By Depreciation (WN.2) Machine 2 Machine 3 1,52,205 41,000 1,93,205 Mar.31 By bal c/d 14,17,819 29,27,504 29,27,504 Working Note 1: Calculation of depreciation and Profit/loss on sale: Machine 1 (₹) Machine 2 (₹) Total Depreciation (₹) Cost of Purchase 15,00,000 9,00,000 Add: Installation/Repairs 2,00,000 20,000 Total Cost 17,00,000 9,20,000 Less: Depreciation @12% (2021-22) (₹ 2,04,000) (55, 200) 2,59,200 W.D.V. on 31-3-2022 14,96,000 8,64,800 Less: Depreciation @12% (2022-23) (₹ 1,79,520) (₹ 1,03,776) 2,83,296 W.D.V. on 31-3-2023 13,16,480 7,61,024 Less: Depreciation on SLM Basis (WN.2) (₹ 2023-24 till sale) (₹ 1,31,648) (₹ 1,52,205) 2,83,853 WDV before sale/remaining 11,84,832 6,08,819 Less: Sale proceeds on 1-10-2023 (₹ 2,50,000) Loss on sale of machinery 9,34,832 Working Note 2: Calculation of Depreciation on the basis of Straight-line method with effect from April, 1,2023 Machine 1 (purchased on 1 st April, 2021) = (₹ 17,00,000 -2,04,000 -1,79,520) /5 = 13,16,480 /5 = 2,63,296. Depreciation for6 months = 2,63,296 /2 = 1,31,648Machine 2 (purchased on 1 st Oct, 2021) = (₹ 9,20,000 - 55,200 - 1,03,776) /5 = 7,61,024 /5 = 1,52,205Machine 3 (purchased on 1 st Oct, 2023) = (₹ 8,50,000 - 30,000) /10 = 82,000. Depreciation for6 months = 82,000 /2 = 41,000 Note: Freight incurred on Machinery purchased on 1 st April, 2021 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

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic