Question No 38 Chapter No 13

Creation of Provision for Depreciation Account

38. Ravi Kumar purchased machinery for Rs 2,00,000 on 1st April 2016. he spent Rs 40,000 on its installation. He purchased another machine for Rs 60,000 on 1st October 2017 and sold on 31st December 2018, one-half of the machinery purchased on 1st April 2016 for Rs 75,000.
Prepare Machinery Account and Provision for depreciation Account for 3 years when depreciation is charged 10% p.a. on reducing balance method and books are closed on 31st March every year.

The solution of Question No 38 Chapter No 13:-

 Dr. Machinery A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 01/04/16 To Bank A/c 2,40,000 31/03/17 By Balance C/d 2,40,000 2,40,000 2,40,000 01/04/17 To Balance b/d 2,40,000 01/10/17 To Bank A/c 60,000 31/03/18 By Balance C/d 3,00,000 3,00,000 3,00,000 01/04/18 To Balance b/f 3,00,000 01/04/18 By Bank A/c 75,000 01/04/18 By Provision for Dep. 30,090 01/04/18 By Profit/loss 14,910 31/03/19 By Balance C/d 1,80,000 3,00,000 3,00,000

 Dr. Provision for Depreciation A/c Cr. Date Particulars J.F. Amount Date Particulars J.F. Amount 01/03/17 By Depreciation A/c*1 24,000 31/03/16 To Balance c/d 24,000 24,000 24,000 01/04/17 By Balance b/f 24,000 01/03/18 By Depreciation A/c 24,600 01/03/18 To Balance c/d 48,600 48,600 48,600 1/12/18 To Machinery A/c 30,090 01/04/8 By Balance b/f 48,600 01/12/18 By Depreciation A/c 7,290 13/03/18 By Depreciation A/c*3 15,420 13/03/18 To Balance c/d 71,310 71,310 71,310

Working note:-

*1:- Calculation of the amount of Depreciation on furniture for the year 2015-16
Machinery purchased on 1st Apr 2016
Depreciation = Value of Asset X Rate of Depreciation X Period
Value of Asset = 2,40,000
Rate of Depreciation = 10%
Period = from 01/04/2016 to 31/03/2017 i.e 12 months
(from the date of purchase/Beginning balance to the end of the financial year)
= 2,40,000 X 10/100 X 12/ 12
Depreciation = 24,000
Total Depreciation for the year = 24,000

*2:- Calculation of the amount of Depreciation on furniture for the year 2016-17
Machinery purchased on 1st Apr 2016
Depreciation = Value of Asset X Rate of Depreciation X Period
Value of Asset = 2,16,000
Rate of Depreciation = 10%
Period = from 01/04/2016 to 31/03/2017 i.e.12 months
(from the date of purchase/Beginning balance to end of the financial year)
= 2,16,000 X 10/100 X 12/ 12
Depreciation = 12,600
Machinery purchased on 1st Oct 2017
Depreciation = Value of Asset X Rate of Depreciation X Period
Value of Asset = 60,000
Rate of Depreciation = 10%
Period = from 01/10/2016 to 31/03/2017 i.e.6 months
(from the date of purchase/Beginning balance to end of the financial year)
= 60,000 X 10/100 X 6/ 12
Depreciation = 3,000
Total Depreciation for the year =24,600

 Statement Showing profit or loss on the sale of Machinery Particulars Amount Purchase value of Equipment as on 1st Apr, 2016 ½ 1,20,000 Less: – Amount of Depreciation charged on the year 2017-18 1,20,000 *10%* 12/12 12,000 Amount of Depreciation charged on the year 2017-18 1,08,000 *10%* 12/12 10,800 Amount of Depreciation charged on the year 2018-19 97,200 *10%* 9/12 7,290 Book value of the asset as on 1st December 2018 89,910 Sale Price of Machinery 75,000 Profit on the sale of the asset 14,910

*3:- Calculation of the amount of Depreciation on furniture for the year 2018-19

Machinery purchased on 1st Apr 2016 ½
Depreciation = Value of Asset X Rate of Depreciation X Period
Value of Asset = 97,200
Rate of Depreciation = 10%
Period = from 01/04/2018 to 31/03/2019 i.e.12 months
(from the date of purchase/Beginning balance to end of the financial year)
= 97,200 X 10/100 X 12/ 12
Depreciation = 9,720
Machinery purchased on 1st Oct 2017
Depreciation = Value of Asset X Rate of Depreciation X Period
Value of Asset = 57,000
Rate of Depreciation = 10%
Period = from 01/04/2018 to 31/03/2019 i.e.12 months
(from the date of purchase/Beginning balance to end of the financial year)
= 57,000 X 10/100 X 12/ 12
Depreciation = 5,700
Total Depreciation for the year = 15,420

Depreciation | Meaning | Methods | Examples

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Also, Check out the solved question of all Chapters: –

Chapter No. 1 – Introduction

Chapter No. 2 – Theory Base of Accounting

Chapter No. 3 – Vouchers and transactions

Chapter No. 4 – Journal

Chapter No. 5 – Ledger

Chapter No. 6 – Cash Book

Chapter No. 7 – Other Subsidiary Books

Chapter No. 8 – Journal Proper

Chapter No. 9 – Trial Balance

Chapter No. 10 – Bank Reconciliation Statement

Chapter No. 11 – Depreciation

Chapter No. 12 – Provisions and Reserves

Chapter No. 13 – Bills of Exchange

Chapter No. 14 – Rectification of Errors

Chapter No. 15 – Financial Statements – (Without Adjustments)

Chapter No. 16 – Financial Statements – (With Adjustments)