Q.On July 1st, 2016 Rubi Ltd. purchased a machinery of Rs. 5,70,000 and paid Rs. 30,000 for its overhauling installation. Depreciation is provided @ 20% p.a. on original cost method and the books are closed on 31st March every year. The machine was sold on 31st January, 2019 for a sum of Rs. 1,60,000. Prepare the Machinery Account and Provision for Depreciation Account for three years. Or Hellen Ltd. purchased a machinery on 1st May, 2018 for Rs. 60,000. On 1st July, 2019 it purchased another machine for Rs. 20,000, on 31st March, 2020 it sold off the first machine purchased in 2018 for Rs. 38,500 and on the same date purchased a new machine for Rs. 50,000. Depreciation is provided at 20% p.a. on the original cost each year. Accounts are closed each year on 31st December. Show the machinery account for 3 years.
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Start your 14-day free trial to unlock the full solution →Rubi Ltd.: Machinery cost = Rs. 6,00,000; depreciation @20% p.a. on cost (Rs. 1,20,000/year, time-proportioned) accumulates to Rs. 3,10,000 by the date of sale (31 Jan 2019); book value Rs. 2,90,000 against sale proceeds Rs. 1,60,000 gives a loss on sale of Rs. 1,30,000. OR: Hellen Ltd.'s Machinery Account over 2018–2020 shows a profit of Rs. 1,500 on selling the first machine and closes 2020 with a combined balance of Rs. 56,500 for the remaining two machines.
Part 1 — Rubi Ltd.
Total cost of machinery = 5,70,000 + 30,000 (overhauling/installation) = Rs. 6,00,000
Annual depreciation @ 20% p.a. on original cost (SLM) = 20% × 6,00,000 = Rs. 1,20,000 per full year
Accounting year ends 31st March each year; machine purchased 1st July 2016; sold 31st January 2019.
| Year | Period owned | Months | Depreciation |
|---|---|---|---|
| 2016–17 | 1 Jul 2016 – 31 Mar 2017 | 9 | 1,20,000 × 9/12 = 90,000 |
| 2017–18 | 1 Apr 2017 – 31 Mar 2018 | 12 | 1,20,000 |
| 2018–19 | 1 Apr 2018 – 31 Jan 2019 (sale) | 10 | 1,20,000 × 10/12 = 1,00,000 |
| Total accumulated depreciation to date of sale | 3,10,000 |
Book value at date of sale = 6,00,000 − 3,10,000 = Rs. 2,90,000
Sale proceeds = Rs. 1,60,000
Loss on sale = 2,90,000 − 1,60,000 = Rs. 1,30,000
Machinery Account (at original cost — maintained under the Provision for Depreciation method)
| Dr. | Particulars | Amount | Cr. | Particulars | Amount | |
|---|---|---|---|---|---|---|
| 2016 Jul 1 | To Bank A/c | 6,00,000 | 2017 Mar 31 | By Balance c/d | 6,00,000 | |
| 2017 Apr 1 | To Balance b/d | 6,00,000 | 2018 Mar 31 | By Balance c/d | 6,00,000 | |
| 2018 Apr 1 | To Balance b/d | 6,00,000 | 2019 Jan 31 | By Provision for Depreciation A/c | 3,10,000 | |
| 2019 Jan 31 | By Bank A/c (sale proceeds) | 1,60,000 | ||||
| 2019 Jan 31 | By Profit and Loss A/c (loss on sale) | 1,30,000 | ||||
| Total | 6,00,000 | Total | 6,00,000 |
Provision for Depreciation Account
| Dr. | Particulars | Amount | Cr. | Particulars | Amount | |
|---|---|---|---|---|---|---|
| 2017 Mar 31 | To Balance c/d | 90,000 | 2017 Mar 31 | By Depreciation A/c | 90,000 | |
| 2018 Mar 31 | To Balance c/d | 2,10,000 | 2017 Apr 1 | By Balance b/d | 90,000 | |
| 2018 Mar 31 | By Depreciation A/c | 1,20,000 | ||||
| 2019 Jan 31 | To Machinery A/c (transfer) | 3,10,000 | 2018 Apr 1 | By Balance b/d | 2,10,000 | |
| 2019 Jan 31 | By Depreciation A/c | 1,00,000 | ||||
| Total | 3,10,000 | Total | 3,10,000 |
Part 2 — OR: Hellen Ltd.
Annual depreciation (SLM, on original cost): Machine 1 (60,000) = Rs. 12,000/yr; Machine 2 (20,000) = Rs. 4,000/yr; Machine 3 (50,000) = Rs. 10,000/yr. Accounts closed 31st December each year.
| Year | Depreciation workings | Total Depreciation |
|---|---|---|
| 2018 (1 May–31 Dec, 8 months) | Machine 1: 12,000 × 8/12 = 8,000 | 8,000 |
| 2019 (full year; Machine 2 from 1 Jul, 6 months) | Machine 1: 12,000; Machine 2: 4,000 × 6/12 = 2,000 | 14,000 |
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