On 01-01-2014 a firm purchased machinery costing Rs. 80,000, on 1-7-2016, it sold the machinery for Rs. 60,000 and on the same date a new machine was purchased for Rs. 20,000. Depreciation was charged annually at 10% p.a. on straight line method. Accounts are closed on 31st March

Question

On 01-01-2014 a firm purchased machinery costing Rs. 80,000, on 1-7-2016, it sold the machinery for Rs. 60,000 and on the same date a new machine was purchased for Rs. 20,000. Depreciation was charged annually at 10% p.a. on straight line method. Accounts are closed on 31st March every year. Show the machinery and depreciation account for first four years.

Accepted Answer

>

> [!TLDR]
> SLM 10% on cost. Old machine (80,000) sold 1-7-2016 at book value 60,000 for 60,000 = no profit/loss. New machine 20,000, WDV 18,500. Final-year account ties at Rs 82,000.
>
> **Workings**
> - Old machine cost 80,000 (1-1-2014); annual SLM dep = 80,000 x 10% = 8,000.
> - Year ended 31-3-2014 (3 months, 1-1-2014 to 31-3-2014): 80,000 x 10% x 3/12 = 2,000 → WDV 78,000.
> - 2014-15: 8,000 → WDV 70,000. 2015-16: 8,000 → WDV 62,000.
> - 2016-17: dep on old machine to date of sale (1-4-2016 to 1-7-2016 = 3 months) = 2,000 → book value at sale = 62,000 – 2,000 = 60,000. Sold for 60,000 → **no profit / no loss**.
> - New machine (1-7-2016) cost 20,000; dep 1-7-2016 to 31-3-2017 = 9 months = 20,000 x 10% x 9/12 = 1,500 → WDV 18,500.
>
> **Machinery Account**
>
> | Date | Particulars | Amount (Rs) | Date | Particulars | Amount (Rs) |
> |---|---|---|---|---|---|
> | 1-1-2014 | To Bank | 80,000 | 31-3-2014 | By Depreciation | 2,000 |
> | | | | 31-3-2014 | By Balance c/d | 78,000 |
> | | | **80,000** | | | **80,000** |
> | 1-4-2014 | To Balance b/d | 78,000 | 31-3-2015 | By Depreciation | 8,000 |
> | | | | 31-3-2015 | By Balance c/d | 70,000 |
> | | | **78,000** | | | **78,000** |
> | 1-4-2015 | To Balance b/d | 70,000 | 31-3-2016 | By Depreciation | 8,000 |
> | | | | 31-3-2016 | By Balance c/d | 62,000 |
> | | | **70,000** | | | **70,000** |
> | 1-4-2016 | To Balance b/d | 62,000 | 1-7-2016 | By Depreciation (old, 3 m) | 2,000 |
> | 1-7-2016 | To Bank (new machine) | 20,000 | 1-7-2016 | By Bank (sale) | 60,000 |
> | | | | 31-3-2017 | By Depreciation (new, 9 m) | 1,500 | …

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
…

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	Amount (Rs)	Date	Particulars	Amount (Rs)
1-1-2014	To Bank	80,000	31-3-2014	By Depreciation	2,000
			31-3-2014	By Balance c/d	78,000
		80,000			80,000
1-4-2014	To Balance b/d	78,000	31-3-2015	By Depreciation	8,000
			31-3-2015	By Balance c/d	70,000
		78,000			78,000
1-4-2015	To Balance b/d	70,000	31-3-2016	By Depreciation	8,000
			31-3-2016	By Balance c/d	62,000
		70,000			70,000
1-4-2016	To Balance b/d	62,000	1-7-2016	By Depreciation (old, 3 m)	2,000
1-7-2016	To Bank (new machine)	20,000	1-7-2016	By Bank (sale)	60,000
			31-3-2017	By Depreciation (new, 9 m)	1,500

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