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Question No 10 Chapter No 14
10. On 1st April 2015, Shivam Enterprise purchased a second- hand machinery for Rs 52,000and spent Rs 2,000 on cartage, Rs 3,000 on unloading, Rs 2,000 on installation and Rs 1,000 as the brokerage of the middle man. It was estimated that the machinery will have a scrap value of Rs 6,000 at the end of its useful life, which is 10 year. On 31st December 2015, repairs and renewals amounted to Rs 2,500 were paid. On 1st October 2017, this machine was sold for Rs 30,600 and an amount of Rs 600 was paid as commission to the agent. Calculate the amount of annual depreciation and rate of depreciation. Also prepare the Machinery Account for the first 3 years, assuming that firm follows finical year for accounting.
The solution of Question No 10 Chapter No 14: -
| Dr. | Machine A/c | Cr. | |||||
| Date | Particulars |
J.F. | Amount | Date | Particulars |
J.F. | Amount |
|---|---|---|---|---|---|---|---|
| 01/4/15 | To Cash A/c | 60,000 | 31/03/16 | By Deprecation A/c | 5,400 | ||
| 31/03/16 | By Balance C/d | 54,600 | |||||
| 60,000 | 60,000 | ||||||
| 01/04/16 | To Balance b/d | 54,600 |
31/03/17 | By Deprecation A/c | 5,400 | ||
| 31/03/17 | By Balance C/d | 49,200 |
|||||
| 54,600 |
54,600 |
||||||
| 01/04/17 | To Balance b/d | 49,200 | 01/10/17 | By Cash A/c | 30,600 | ||
| 01/10/17 | By Deprecation A/c | 2,700 | |||||
| 01/10/17 | By loss on the sale of van A/c | 16,500 | |||||
| 49,200 |
49,200 | ||||||
Working note:-
The method of calculating the Deprecation rate:
| Amount of Depreciation = | Cost of assets- Estimated Realizable or Scrap value |
| Number of years of expected useful life |
Rate of Deprecation can be calculated with the help of following formula:
| Rate of Depreciation = | Amount of Depreciation | X100 |
| Total Cost of Assets |
Cost of assets = Cost of Machine + cartage+ unloading + installation + brokerage of the middle man
Cost of assets = 52,000 + 2,000 + 3,000 + 2,000 + 1,000 = 60,000
Number of years of expected useful life = 10 years
Estimated Retaliated or Scrap value = 6,000
| Amount of Depreciation = | 60,000 – 6,000 | = 5,400 |
| 10 |
Rate of Deprecation can be calculated with the help of following formula:
| Rate of Depreciation = | 5,400 | X100 |
| 60,000 |
=9%
| Statement Showing profit or loss on the sale of Machinery | Cr. |
| Particulars |
Amount |
|---|---|
| Book value of machinery as on 1st April 2015 when it was purchased | 60,000 |
| Add: commission to an agent | 600 |
| 60,600 | |
| Less: - Amount of Depreciation charged on the year 2015-16 | |
| 10,000*9%*12/12 | 5,400 |
| Amount of Depreciation charged on the year 2016-17 | 5,400 |
| Amount of Depreciation charged on the year 2017-18 | |
| 10,000*9%*6/12 | 2,700 |
| Sale Price of Machinery | 30,600 |
| Loss on the sale of the asset | 16,500 |
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Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
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