Q.On 1st April 2021, X Ltd. purchased machinery for ₹2,00,000. Depreciation is charged at 10% per annum on original cost under the Straight Line Method, using the Provision for Depreciation Account. Pass the necessary journal entries and prepare the Machinery Account and the Provision for Depreciation Account for the first two years ending 31st March 2022 and 2023.

With the Provision method, the Machinery Account stays untouched at cost while a separate account quietly accumulates the depreciation.

Step 1 — Annual depreciation. 10% of ₹2,00,000 = ₹20,000 per year (same each year, since SLM is on original cost).

Step 2 — Journal entries.

2021 Apr 1: Machinery A/c ...Dr 2,00,000

To Bank A/c 2,00,000

(Being machinery purchased)

2022 Mar 31: Depreciation A/c ...Dr 20,000

To Provision for Depreciation A/c 20,000

(Being depreciation for the year credited to the Provision Account)

2022 Mar 31: Profit and Loss A/c ...Dr 20,000

To Depreciation A/c 20,000

(Being depreciation transferred to Profit and Loss Account)

2023 Mar 31: Depreciation A/c ...Dr 20,000

To Provision for Depreciation A/c 20,000

2023 Mar 31: Profit and Loss A/c ...Dr 20,000

To Depreciation A/c 20,000

Step 3 — Machinery Account (stays at original cost).

2021-22:

2022-23:

Step 4 — Provision for Depreciation Account (accumulates).

2021-22:

2022-23: …

Crediting the Machinery Account itself with depreciation (that is the direct method, not the Provision method — it defeats the whole purpose of keeping the asset at cost); forgettin …