Khan Bros. purchased a second-hand machinery on 1st October, 2015 for ₹ 1,80,000 and spent ₹ 20,000 on its erection. Show the machinery account for three years, if the accounts are closed on 31st March every year. The depreciation is to be charged @ 10% p.a. on original cost.

OR

Question

Khan Bros. purchased a second-hand machinery on 1st October, 2015 for ₹ 1,80,000 and spent ₹ 20,000 on its erection. Show the machinery account for three years, if the accounts are closed on 31st March every year. The depreciation is to be charged @ 10% p.a. on original cost.

OR

Compare fixed installment method and written down value method of providing depreciation.

Accepted Answer

>

> [!TLDR]
> Total cost = ₹2,00,000 (₹1,80,000 + ₹20,000 erection); SLM @10% p.a. on cost; machinery stands at ₹1,50,000 on 31-Mar-2018.
>
> **Main part:**
> Total cost of machinery = 1,80,000 + 20,000 (erection) = **₹2,00,000**. Depreciation @10% p.a. on original cost (straight line) = ₹20,000 per full year. Purchased 1-Oct-2015, so Year 1 gets only 6 months' depreciation.
>
> **Machinery Account (books of Khan Bros.):**
>
> | Date | Particulars | ₹ | Date | Particulars | ₹ |
> |---|---|---|---|---|---|
> | 2015 Oct 1 | To Bank A/c (cost + erection) | 2,00,000 | 2016 Mar 31 | By Depreciation A/c (6 months) | 10,000 |
> | | | | 2016 Mar 31 | By Balance c/d | 1,90,000 |
> | | **Total** | **2,00,000** | | **Total** | **2,00,000** |
> | 2016 Apr 1 | To Balance b/d | 1,90,000 | 2017 Mar 31 | By Depreciation A/c | 20,000 |
> | | | | 2017 Mar 31 | By Balance c/d | 1,70,000 |
> | | **Total** | **1,90,000** | | **Total** | **1,90,000** |
> | 2017 Apr 1 | To Balance b/d | 1,70,000 | 2018 Mar 31 | By Depreciation A/c | 20,000 |
> | | | | 2018 Mar 31 | By Balance c/d | 1,50,000 |
> | | **Total** | **1,70,000** | | **Total** | **1,70,000** |
>
> Closing (WDV) balance carried forward on 31st March 2018 = **₹1,50,000**.
>
> **OR part — Fixed Installment Method vs Written Down Value Method:**
>
> | Basis | Fixed Installment (Straight Line) Method | Written Down Value Method |
> |---|---|---|
> | Base for charging depreciation | Original cost of the asset, every year | Book value (cost less depreciation already charged), every year |
> | Amount of annual depreciation | Equal/fixed every year | Goes on decreasing every year |
> | Asset value at end of life | Can be reduced to zero/scrap value | Can never become exactly zero | …

Particulars	Debit (₹)	Credit (₹)
Depreciation A/c ……… Dr.	xxx
To Asset A/c		xxx
(Being depreciation charged on asset)

Particulars	Debit (₹)	Credit (₹)
Profit & Loss A/c ……… Dr.	xxx
To Depreciation A/c		xxx
(Being depreciation transferred to P&L)

Item	Amount (₹)
Cost of the asset	80,000
Less: Scrap value	10,000
Depreciable amount	70,000
Useful life	10 years
…

Q.Khan Bros. purchased a second-hand machinery on 1st October, 2015 for ₹ 1,80,000 and spent ₹ 20,000 on its erection. Show the machinery account for three years, if the accounts are closed on 31st March every year. The depreciation is to be charged @ 10% p.a. on original cost.

Concept understanding — Depreciation Accounting

Depreciation Accounting — A First Look

The precise meaning

Why does it matter?

The accounting treatment

The two main methods

Straight Line Method (SLM)

Written Down Value Method (WDV)

Date	Particulars	₹	Date	Particulars	₹
2015 Oct 1	To Bank A/c (cost + erection)	2,00,000	2016 Mar 31	By Depreciation A/c (6 months)	10,000
			2016 Mar 31	By Balance c/d	1,90,000
	Total	2,00,000		Total	2,00,000
2016 Apr 1	To Balance b/d	1,90,000	2017 Mar 31	By Depreciation A/c	20,000
			2017 Mar 31	By Balance c/d	1,70,000
	Total	1,90,000		Total	1,90,000
2017 Apr 1	To Balance b/d	1,70,000	2018 Mar 31	By Depreciation A/c	20,000
			2018 Mar 31	By Balance c/d	1,50,000
	Total	1,70,000		Total	1,70,000

Basis	Fixed Installment (Straight Line) Method	Written Down Value Method
Base for charging depreciation	Original cost of the asset, every year	Book value (cost less depreciation already charged), every year
Amount of annual depreciation	Equal/fixed every year	Goes on decreasing every year
Asset value at end of life	Can be reduced to zero/scrap value	Can never become exactly zero

Q.Khan Bros. purchased a second-hand machinery on 1st October, 2015 for ₹ 1,80,000 and spent ₹ 20,000 on its erection. Show the machinery account for three years, if the accounts are closed on 31st March every year. The depreciation is to be charged @ 10% p.a. on original cost.

🎓Unlock everything free for 14 days

Unlock everything free for 14 days