A Firm purchased an old Machinery for 37,000 on 1 st January, 2020 and spent - 3,000 on its overhauling. On 1 st July 2021, another machine was…

CA Foundation · Accounting · MTP · June 2024
A Firm purchased an old Machinery for 37,000 on 1 st January, 2020 and spent - 3,000 on its overhauling. On 1 st July 2021, another machine was purchased for 10,000. On 1 st July 2022, the machinery which was purchased on 1 st January 2020, was sold for 28,000 and the same day a new machinery costing - 25,000 was purchased. On 1 st July, 2023, the machine which was purchased on 1 st July, 2021 was sold for 2,000. Depreciation is charged @ 10% per annum on straight line method. The firm changed the method and adopted diminishing balance method with effect from 1 st January, 2021 and the rate was increased to 15% per annum. The books are closed on 31 st December every year. Prepare Machinery account for four years from 1 st January, 2020.

Suggested Answer and Working Notes:

In the books of Firm Machinery Account Date Particulars Amount (₹) Date Particulars Amount (₹) 1.1.2020 To Bank A/c 37,000 31.12.2020 By Depreciation A/c 4,000 To Bank A/c (overhauling charges) 3,000 31.12.2020 By Balance c/d 36,000 _______ _______ 40,000 40,000 1.1.2021 To Balance b/d 36,000 31.12.2021 By Depreciation A/c (₹ 5,400 +750) 6,150 1.7.2021 To Bank A/c 10,000 31.12.2021 By Balance c/d (₹ 30,600 +9,250) 39,850 _______ _______ 46,000 46,000 1.1.2022 To Balance b/d 39,850 1.7.2022 By Bank A/c (sale) 28,000 1.7.2022 To Bank A/c 25,000 1.7.2022 By Profit and Loss A/c (Loss on Sale – W.N. 1) 305 31.12.2022 By Depreciation A/c (₹ 2,295 +1,388 +1,875) 5,558 By Balance c/d (₹ 7,862 +23,125) 30,987 _______ _______ 64,850 64,850 1.1.2023 To Balance b/d 30,987 1.7.2023 By Bank A/c (sale) 2,000 1.7.2023 By Profit and Loss A/c (Loss on Sale – W.N. 1) 5,272 31.12.2023 By Depreciation A/c (₹ 590 +3,469) 4,059 31.12.2023 By Balance c/d 19,656 _______ _______ 30,987 30,987 Working Note: Book Value of machines Particulars Machine I (₹) Machine II (₹) Machine III (₹) Cost of all machinery (Machinery cost for 2020) 40,000 Depreciation for 2020 4,000 Written down value as on 31.12.2020 36,000 Purchase 1.7.2021 (6 months) 10,000 Depreciation for 2021 5,400 750 Written down value as on 31.12.2021 30,600 9,250 Depreciation for 6 months (2022) 2,295 Written down value as on 1.7.2022 28,305 Sale proceeds 28,000 Loss on sale 305 Purchase 1.7.2022 25,000 Depreciation for 2022 1,388 1,875 Written down value as on 31.12.2022 7,862 23,125 Depreciation for 6 months in 2023 590 Written down value as on 1.7.2023 7,272 Sale proceeds 2,000 Loss on sale 5,272 Depreciation for 2023 3,469 Written down value as on 31.12.2023 19,656

Topics: Depreciation and Amortisation

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