NCERT Solutions for Class 11 Accountancy Financial Accounting Part-1 Chapter 7 – Depreciation, Provisions and Reserves

Short answers : Solutions of Questions on Page Number : 272

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Q1 :What is Depreciation?
Answer : Every business acquires fixed assets for its use in the business over a period of time. As the benefits of these assets can be availed over a long period of time, thus, due to their regular use, there occurs continuous wear and tear and consequently fall in their value. This fall in the value of fixed assets, due to their regular use or expiry of time is termed as depreciation.A machinery costing Rs 1,00,000 and its useful life is 10 years; so, depreciation is calculated as:

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Q2 :State briefly the need for providing depreciation.
Answer :
The needs for providing depreciation are given below.
To ascertain true net profit or net loss- Correct profit or loss can be ascertained when all the expenses and losses incurred for earning revenues are charged to Profit and Loss Account. Assets are used for earning revenues and its cost is charged in form of depreciation from Profit and Loss Account.
To show true and fair view of financial statements- If depreciation is not charged, assets are shown at higher value than their actual value in the Balance Sheet; consequently, the Balance Sheet does not reflect true and fair view of financial statements.
For ascertaining the accurate cost of production- Depreciation on plant and machinery and other assets, which are engaged in production, is included in the cost of production. If depreciation is not included, cost of production is underestimated, which will lead to low sale price and thus leads to low profit.
Distribution of dividend out of profit- If depreciation is not charged, which leads to overestimating of profit and consequently more profit is distributed as dividend, out of capital instead of the profit. This leads to the flight of scarce capital out of the business.
To provide funds for replacement of assets- Unlike other expenses, depreciation is not a cash expense. So, the amount of depreciation charged will be retained in the business and will be used for replacement of fixed assets after its useful life.
Consideration of tax- If depreciation is charged, then Profit and Loss Account will disclose lesser profit as to when the depreciation is not charged. This depicts reduced profit and thus the business will be liable for lesser tax amount.

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Q3 :What are the causes of depreciation?
Answer :

Constant use – Due to constant use of the fixed assets there exists normal wear and tear that leads to fall in the value of fixed assets.
Expiry of time – With the passage of time, whether assets are used or not, its effective life decreases. The natural forces like rain, weather, etc. lead to deterioration of the fixed assets.
Obsolescence – Due to the fast technological innovations and inventions today’s assets may be outdated by tomorrow’s sophisticated assets. This leads to the obsolescence of fixed assets.
Expiry of legal rights – If an asset is acquired for a specific period of time, then, whether the asset is put to use or not, its value becomes zero at the end of its useful life. For example, if a land is acquired for Rs 1,00,000 for 25 years on lease, then each year its value depreciates by of its gross value. At the end of the 25th year, the value of the lease will be zero.
Accident – An asset may lose its value and damage may happen to it due to mishaps such as a fire accident, theft or a natural calamity. The loss due to accident is permanent in nature.
Permanent fall in value – Generally, we do not record fluctuations in the market price of the fixed assets in the books. However, if the fall in market price is permanent, it is accounted, which leads to a fall in the value of fixed assets in the books.

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Q4 :Explain basic factors affecting the amount of depreciation.
Answer :

Total cost of asset – The total cost of an asset is taken into consideration for ascertaining the amount of depreciation. The expenses incurred in acquiring, installing and constructing asset and bringing the asset to its usable condition are included in the total cost of asset.
Estimated useful life – Every asset has its useful life other than its physical life (in terms of number of years, units, etc.), used by a business. The useful life of an asset is considered to estimate the effective life of a fixed asset. For example, land has indefinite life; however, if business acquiress a piece of land on lease for 25 years, then the useful life of the piece of land is considered to be 25 years.
Estimated scrap value – It is estimated as the net realisable value or sale value of an asset at the end of its effective life. It is deducted from the total cost of an asset. For example, furniture is acquired at Rs 50,000 and its effective life is 10 years.
After 10 years, the furniture will be sold at Rs 10,000. So, depreciation is charged as:

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Q5 :Distinguish between straight line method and written down value method of calculating depreciation.
Answer :

Basis of Difference	Straight Line Method	Written Down Value Method
Basis for calculation	Depreciation is calculated on the original cost of an asset.	Depreciation is calculated on the reducing balance, i.e., the book value of an asset.
Amount of depreciation	Equal amount is charged each year over the effective life of the asset.	Diminishing amount of depreciation (on the written down value of asset) is charged each year over the effective life of the asset.
Book value of asset	Book value of the asset becomes zero at the end of its effective life.	Book value of the asset can never be zero.
Suitability	It is suitable for the assets like patents, copyright, land and buildings, etc., which have lesser possibility of obsolescence and lesser repair charges.	It is suitable for assets that needs more repair in the later years like, plant and machinery, car, etc.
Effect of depreciation and repair on profit and loss account	Unequal effect over the life of the asset, as depreciation remains same over the years but repair cost increases in the later years.	Equal effect over the life of the asset, as depreciation cost is high and repairs are less in the initial years but in the latter years the repair costs increase and depreciation cost decreases.
Recognition under Income Tax Act	It is not recognised under the income tax act.	It is recognised under the income tax act.

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Q6 :In case of a long term asset, repair and maintenance expenses are expected to rise in later years than in earlier year. Which method is suitable for charging depreciation if the management does not want to increase burden on profits and loss account on account of depreciation and repair.
Answer : If the management does not want to exert undue burden on the profits due to high depreciation and repair costs in the latter years of the assets, then ‘written down method’ should be a preferred method to provide depreciation. This is because the cost of depreciation reduces; whereas, repair and maintenance expenses increase in the latter years. However, on the whole, it does not exert increasing burden on profits.

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Q7 :What are the effects of depreciation on profit and loss account and balance sheet?
Answer :
The effects of depreciation on Profit and Loss Account are given below.
Depreciation increases the debit side of profit and loss account and hence reduces net profit.
Depreciation increases the total expenses, leading to an excess of debit over credit balance.
The effects of depreciation on Balance Sheet are given below.
It reduces the original cost or book value of the concerned asset.
It reduces the overall balance of asset’s column in the balance sheet.

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Q8 :Distinguish between provision and reserve.
Answer :

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Q9 :Give four examples each of provision and reserves.
Answer :
Four examples of provision are given below.
Provision for bad and doubtful debts
Provision for discount on debtors
Provision for depreciation
Provision for taxation
Four examples of reserve are given below.
General reserve
Capital reserve
Dividend equalisation reserve
Debenture redemption reserve

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Q10 :Distinguish between revenue reserve and capital reserve.
Answer :

Basis of Difference	Revenue Reserve	Capital Reserve
Source	It is created out of revenue profit, i.e., revenue earned from normal activities of business operations.	It is created out of capital profit, i.e., gain from other than normal activities of business operations, such as sale of fixed assets, etc.
Dividend	It can be used for dividend.	It cannot be used for dividend.
Purpose	It is created for strengthening the financial position of the business.	It is created for the purpose laid down in the Companies Act.

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Q11 :Give four examples each of revenue reserve and capital reserves.
Answer :
Four examples of revenue reserve are given below.
General Reserve
Retained Earnings
Dividend Equalisation Reserve
Debenture Redemption Reserve
Four examples of capital reserve are given below.
Issues of shares at premium
Profit or issue of shares
Sale of fixed assets
Profit on redemption of debentures

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Q12 :Distinguish between general reserve and specific reserve.
Answer :

Basis of Difference	General Reserve	Specific Reserve
Meaning	When the reserve is created without any specified purpose, the reserve is called general reserve.	When reserve is created for some specific purpose, the reserve is called specific reserve.
Usage	It can be used for any purpose.	It cannot be used for any purpose other than the specified purpose for which it is created.
Examples	Retained earnings, reserve funds, etc.	Debenture redemption reserve, dividend equalisation reserve, etc.

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Q13 :Explain the concept of secret reserve.
Answer :
Reserves that are created by overstating liabilities or understating assets are known as secret reserves. They are not shown in the balance sheet. These reduce tax liabilities, as the liabilities are overstated. It is created by management to avoid competition by reducing profit. Creation of secret reserve is not allowed by Companies Act, 1956 that requires full disclosure of all material facts and accounting policies while preparing final statements.

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Long answers : Solutions of Questions on Page Number : 273

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Q1 :Explain the concept of depreciation. What is the need for charging depreciation and what are the causes of depreciation?
Answer :
Every business acquires fixed assets for its use in the business over a period of time. As the benefits of these assets can be availed over a long period of time (due to their regular use), there exists continuous wear and tear and consequently fall in their value. This fall in the value of fixed assets (due to regular use or expiry of time) is termed as depreciation.
A machinery that costs Rs 1,00,000 and its useful life of 10 years, its depreciation will be calculated as:

To ascertain true net profit or net loss – Correct profit or loss can be ascertained when all the expenses and losses incurred for earning revenues are charged to profit and loss account. Assets are used for earning revenues and its cost is charged in form of depreciation from profit and loss account.
To show true and fair view of financial statements – If depreciation is not charged, assets are shown at higher value than their actual value in the balance sheet; consequently, the balance sheet does not reflect true and fair view of financial statements.
For ascertaining the accurate cost of production – Depreciation on plant and machinery and other assets, which are engaged in production, is included in the cost of production. If depreciation is not included, cost of production is underestimated, which will lead to low sale price and thus leads to low profit.
Distribution of dividend out of profit – If depreciation is not charged, which leads to overestimating of profit and consequently more profit is distributed as dividend, out of capital instead of the profit. This leads to the flight of scarce capital out of the business.
To provide funds for replacement of assets – Unlike other expenses, depreciation is not a cash expense. So, the amount of depreciation charged will be retained in the business and will be used for replacement of fixed assets after its useful life.
Consideration of tax – If depreciation is charged, then profit and loss account will disclose lesser profit as to when the depreciation is not charged. This depicts reduced profit and thus the business will be liable for lesser tax amount.

Below are given the causes for depreciation.

Constant use – Due to constant use of the fixed assets there exists normal wear and tear that leads to fall in the value of fixed assets.
Expiry of time – With the passage of time, whether assets are used or not, its effective life decreases. The natural forces like rain, weather, etc. lead to deterioration of the fixed assets.
Obsolescence – Due to the fast technological innovations and inventions today’s assets may be outdated by tomorrow’s sophisticated assets. This leads to the obsolescence of fixed assets.
Expiry of legal rights – If an asset is acquired for a specific period of time, then, whether the asset is put to use or not, its value becomes zero at the end of its useful life. For example, if a land is acquired for Rs 1,00,000 for 25 years on lease,
then each year its value depreciates by of its gross value. At the end of the 25^th year, the value of the lease will be zero.
Accident – An asset may lose its value and damage may happen to it due to mishaps such as a fire accident, theft or a natural calamity. The loss due to accident is permanent in nature.
Permanent fall in value – Generally, we do not record fluctuations in the market price of the fixed assets in the books. However, if the fall in market price is permanent, it is accounted, which leads to a fall in the value of fixed assets in the books.

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Q2 :Discuss in detail the straight line method and written down value method of depreciation. Distinguish between the two and also give situations where they are useful.
Answer :
Straight Line method
It is a simple method of charging depreciation. Under this method, depreciation is charged on the original cost of an asset, at a fixed rate of percentage. In this method, amount of depreciation remains same from year to year and asset’s value becomes zero at the end of its useful life.
Amount of depreciation is calculated as under:

Advantages of Straight Line Method
It is simple to calculate.
Asset can be completely written off, i.e., asset can be depreciated until the net scrap value is zero.
Same amount of depreciation is charged every year. Therefore, it helps in easy comparison of Profit and Loss Account for different years.
It is used for assets that have low repairs and maintenance expenses and are continuously used over a period of time.
Limitations of Straight Line Method
Burden of deprecation is more on profit and loss account in the later years, when repair and maintenance costs increase, as asset becomes older.
Value of asset becomes zero in the books even if asset is still in usable condition in business.
Uses of Straight Line Method
This method is useful where repairs and maintenance expenses on asset are low.
It is also useful when an asset is continuously used from one year to another.
It is useful when the value of assets, such as patent, copyright, goodwill, etc., becomes zero
Written Down Value Method
This method is applicable where depreciation is charged on the diminishing balance, i.e., book value of the asset. In this method, asset’s value goes on diminishing year after year and the amount of depreciation declines.
Rate of depreciation is calculated as follows:

Where,
R represents rate of depreciation
n represents expected useful life of the asset
s represents the scrap value
c represents the cost of the asset
Advantages of Written Down Value Method
It is based on the logical assumption that asset is used more in the earlier years, so more cost is charged in form of depreciation.
It is suitable for the assets where repairs are more in the later years, as depreciation is lesser and on a whole the combined burden of depreciation and repairs exerts equal pressure on the net profit over years.
This method is accepted by the income tax authorities.
As more depreciation is charged in the earlier years, so the loss due to obsolescence of the asset is reduced.
Limitations of Written Down Value Method
It is difficult to calculate and is a time consuming process.
The value of an asset cannot be zero, thus the asset cannot be completely written off.
There arises shortage of funds for replacement of new asset. This happens due to the fact that the amount of depreciation is retained and used in the business. Consequently, at the end of the useful life of an old asset, business finds it difficult to arrange funds for its replacement.
Uses of Written Down Value Method
It is useful when assets have long life.
It is useful for those assets that require more repair and maintenance costs in the later years.
It provides easy calculation to provide depreciation of additional asset purchased during a year.
Difference between Straight Line Method and Written Down Value Method

Basis of Difference	Straight Line Method	Written Down Method
Basis for calculation	Depreciation is calculated on the original cost of an asset.	Depreciation is calculated on the reducing balance, i.e., the book value of an asset.
Amount of depreciation	Equal amount is charged each year over the effective life of the asset.	Diminishing amount of depreciation (on the written down value of asset) is charged each year over the effective life of the asset.
Book value of asset	Book value of the asset becomes zero at the end of its effective life.	Book value of the asset can never be zero.
Suitability	It is suitable for the assets like, patents, copyrights, land and buildings, etc., which have lesser possibility of obsolescence and lesser repair charges.	It is suitable for assets that needs more repairs and maintenance costs in the later years like, plant and machinery, car, etc.
Effect of depreciation and repair on profit and loss account	Unequal effect over the life of the asset, as depreciation remains same over the years but repair cost increases in the later years.	Equal effect over the life of the asset, as depreciation is high and repairs are less in the initial years but in the latter years the repair cost increases and depreciation cost decreases.
Recognition under Income Tax Act	It is not recognised under the Income Tax Act.	It is recognised under the Income Tax Act.

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Q3 :Describe in detail two methods of recording depreciation. Also give the necessary journal entries.
Answer :
The two methods of recording depreciation are diagrammatically presented below.

Charging depreciation to Asset Account- Under this method, depreciation is directly credited to the asset account and no separate account is prepared for provision of depreciation. Under this method, the original cost of an asset and the total amount of depreciation cannot be determined from the Balance Sheet, as the Asset Account appears at its written down value.
Journal entries for depreciation are given below.
When depreciation is charged to Assets Account

Depreciation A/c		Dr.
	To Assets A/c
(Depreciation charged to Assets Account)

Closing of Depreciation Account

Profit and Loss A/c		Dr.
	To Depreciation A/c
(Depreciation transferred to Profit and Loss Account)

Creating Provision for Depreciation Account- Under this method, depreciation is not credited to the Assets Account; in fact, it is credited to the provision for Depreciation Account. At the year end, asset is shown at the original cost in the Balance Sheet and total depreciation up to the date of Balance Sheet is shown as Provision for Depreciation Account.
Journal entries for depreciation are:
Charging Depreciation

Depreciation A/c		Dr.
	To Provision for Depreciation A/c
(Depreciation charged)

Closing of Depreciation Account

Profit and Loss A/c		Dr.
	To Depreciation A/c
(Depreciation account is transferred to Profit and Loss Account)

When the asset is sold, the accumulated depreciation on that asset is credited to the Asset Account by passing the following Journal entry:

Provision for Depreciation A/c		Dr.
	To Asset A/c
(Accumulated depreciation transferred to Assets Account)

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Q4 :Explain determinants of the amount of depreciation.
Answer :

Total cost of asset – The total cost of an asset is taken into consideration for ascertaining the amount of depreciation. The expenses incurred in acquiring, installing and constructing of assets and bringing the assets to their usable condition are included in the total cost of asset.
Estimated useful life – Every asset having it’s useful life other than it’s physical life, in terms of number of years, units, etc. are considered to estimate the effective life of a fixed asset. For example, land has indefinite life; however, if business acquires a piece of land on lease for 25 years, it’s useful life is considered to be 25 years.
Estimated scrap value – It is estimated as the net realisable value or sale value of an asset at the end of it’s effective life. It is deducted from the total cost of an asset. For example, furniture is acquired at Rs 50,000 with it’s effective life of 10 years.
After 10 years, furniture will be sold at Rs 10,000. So, depreciation is charged as:

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Q5 :Name and explain different types of reserves in details.
Answer :
Reserves- Reserves are created for strengthening the financial positions and future growth. It is created out of profit earned by business.
The broad classification of reserve is diagrammatically presented below.

Revenue Reserve- It is created out of revenue profit, i.e., revenue earned from normal activities of the business. It can be used for either general purpose or specific purpose. It is of two types:
a. General Reserve- When the reserve is created without any specified purpose, then the reserve is called general reserve. It is a free reserve and so can be used for any purpose. It can also be used for future growth and expansion. For example, reserve funds, retained earnings, contingencies reserves, etc.
b. Specific Reserve- When reserve is created for some specific purpose, then the reserve is called specific reserve.
Examples of specific reserve are given below.
i. Debenture Redemption Reserve
ii. Investment Fluctuation Reserve
iii. Dividend Equalisation Reserve
iv. Workmen Compensation Fund
Capital Reserve- It is created out of capital profit, i.e., gain from other than normal activities of business operations, such as sale of fixed asset, etc. It is created to meet the capital loss. It cannot be distributed as dividend. The example of capital reserves are given below.
i. Premium on issue of shares
ii. Premium on issue of debentures
iii. Profit on redemption of debentures
iv. Profit on sale of fixed assets
v. Profit on reissue of forfeited shares
vi. Profit prior to incorporation
Secret Reserves- Reserves that are created by overstating liabilities or understating assets are known as secret reserves. They are not shown in the Balance Sheet. These reduce tax liabilities, as the liabilities are overstated. It is created by management to avoid competition by reducing profit. Creation of secret reserve is not allowed by Companies Act, 1956, which requires full disclosure of all materials facts and accounting policies, while preparing final statements.

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Q6 :What are provisions? How are they created? Give accounting treatment in case of provision for doubtful Debts.
Answer :
Provisions are the amount that is created against profit to meet the known liability; however, the amount of liability is uncertain. It is created for specific liability. Creation of provision is compulsory even if, there is no profit. The underlying principle behind creation of provision is conservatism, viz., to prepare for future loss. The main rationale for making provisions is to provide cushion to the future business performance against the uncertain and unforeseen losses that may arise from the past transactions. A few examples of provisions are given below.
Provision for bad and doubtful debts
Provision for depreciation
Provision for taxation
Provision for discount on debtors
Provisions are made by debiting the Profit and Loss Account on estimate basis. The provisions are created on the basis of past experiences. Every year, a business may experience common losses, such as depreciation of fixed assets, taxation, etc., which are although known; however, their exact amount of future period is unknown. Thus, business creates provision of certain percentage every year, which is truly based on the intuitions and past experiences. These unascertained liabilities in form of provisions are kept aside, which help future business activities, undisturbed from the future losses.
Accounting treatment for provision for doubtful debts is:

Profit and Loss A/c		Dr.
	To Provision for Doubtful Debts
(Provision for doubtful debt made)

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Numerical questions : Solutions of Questions on Page Number : 273

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Q1 : On April 01, 2000, Bajrang Marbles purchased a Machine for Rs 2,80,000 and spent Rs 10,000 on its carriage and Rs 10,000 on its installation. It is estimated that its working life is 10 years and after 10 years its scrap value will be Rs 20,000.
(a) Prepare Machine account and Depreciation account for the first four years by providing depreciation on straight line method. Accounts are closed on March 31st every year.
(b) Prepare Machine account, Depreciation account and Provision for depreciation account (or accumulated depreciation account) for the first four years by providing depreciation using straight line method accounts are closed on March 31 every year.
Answer :

Books of Bajrang Marbles
(a)
Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2000				2001
Apr.01	Bank		3,00,000	Mar.31	Depreciation		28,000
					Balance c/d		2,72,000
			3,00,000				3,00,000
2001				2002
Apr.01	Balance b/d		2,72,000	Mar.31	Depreciation		28,000
				Mar.31	Balance c/d		2,44,000
			2,72,000				2,72,000
2002				2003
Apr.01	Balance b/d		2,44,000	Mar.31	Depreciation		28,000
				Mar.31	Balance c/d		2,16,000
			2,44,000				2,44,000
2003				2004
Apr.01	Balance b/d		2,16,000	Mar.31	Depreciation		28,000
				Mar.31	Balance c/d		1,88,000
			2,16,000				2,16,000

Note: As per solution, the closing balance of machinery account at the end of fourth year is Rs 1,88,000; whereas, the answer given in the book is Rs 1,28,000
However, if we would have taken purchase price of machine Rs 1,80,000 instead of Rs 2,80,000 then the closing balance would have been be Rs 1,28,000
Working notes: Calculation of annual depreciation

(b)

Provision for Depreciation Account

Depreciation (p.a.)	=	(Original cost – Scrap Value )
		Estimated Life of Asset (years)
	=	(2,80,000 + 10,000 + 10,000 – 20,000)
		10
	=	Rs 28,000 per annum
Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Mar.31	Machinery		28,000	Mar.31	Profit and Loss		28,000
			28,000				28,000
2002				2002
Mar.31	Machinery		28,000	Mar.31	Profit and Loss		28,000
			28,000				28,000
2003				2003
Mar.31	Machinery		28,000	Mar.31	Profit and Loss		28,000
			28,000				28,000
2004				2004
Mar.31	Machinery		28,000	Mar.31	Profit and Loss		28,000
			28,000				28,000
Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2000				2001
Apr.01	Bank		3,00,000	Mar.31	Balance c/d		3,00,000
			3,00,000				3,00,000
2001				2002
Apr.01	Balance b/d		3,00,000	Mar.31	Balance c/d		3,00,000
			3,00,000				3,00,000
2002				2003
Apr.01	Balance b/d		3,00,000	Mar.31	Balance c/d		3,00,000
			3,00,000				3,00,000
2003				2004
Apr.01	Balance b/d		3,00,000	Mar.31	Balance c/d		3,00,000
			3,00,000				3,00,000
Provision for Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Mar.31	Balance c/d		28,000	Mar.31	Depreciation		28,000
			28,000				28,000
				2001
				Apr.01	Balance b/d		28,000
2002				2002
Mar.31	Balance c/d		56,000	Mar.31	Depreciation		28,000
			56,000				56,000
				2002
				Apr.01	Balance b/d		56,000
2003				2003
Mar.31	Balance c/d		84,000	Mar.31	Depreciation		28,000
			84,000				84,000
				2003
				Apr.01	Balance b/d		84,000
2004				2004
Mar.31	Balance c/d		1,12,000	Mar.31	Depreciation		28,000
			1,12,000				1,12,000
Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Mar.31	Provision for Depreciation		28,000	Mar.31	Profit and Loss		28,000
			28,000				28,000
2002				2002
Mar.31	Provision for Depreciation		28,000	Mar.31	Profit and Loss		28,000
			28,000				28,000
2003				2003
Mar.31	Provision for Depreciation		28,000	Mar.31	Profit and Loss		28,000
			28,000				28,000
2004				2004
Mar.31	Provision for Depreciation		28,000	Mar.31	Profit and Loss		28,000
			28,000				28,000

Note: As per solution, the closing balance of Provision for Depreciation Account at the end of fourth year is Rs 1,12,000; whereas, the answer given in the book is Rs 72,000
However, if we would have taken purchase price of machine Rs 1,80,000 instead of Rs 2,80,000 then the closing balance would have been be Rs 72,000

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Q2 :On July 01, 2000, Ashok Ltd. Purchased a Machine for Rs 1,08,000 and spent Rs 12,000 on its installation. At the time of purchase it was estimated that the effective commercial life of the machine will be 12 years and after 12 years its salvage value will be Rs 12,000.
Prepare machine account and depreciation Account in the books of Ashok Ltd. For first three years, if depreciation is written off according to straight line method. The account are closed on December 31st, every year.
Answer:

Books of Ashok Ltd.
Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2000				2000
Jul.01	Bank		1,20,000	Dec.31	Depreciation		4,500
				Dec.31	Balance c/d		1,15,500
			1,20,000				1,20,000
2001				2001
Jan.01	Balance b/d		1,15,500	Dec.31	Depreciation		9,000
				Dec.31	Balance c/d		1,06,500
			1,15,000				1,15,500
2002				2002
Jan.01	Balance b/d		1,06,500	Dec.31	Depreciation		9,000
				Dec.31	Balance c/d		97,500
			1,06,500				1,06,500
2003
Jan.01	Balance b/d		97,500

Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2000				2000
Dec.31	Machinery		4,500	Dec.31	Profit and Loss		4,500
			4,500				4,500
2001				2001
Dec.31	Machinery		9,000	Dec.31	Profit and Loss		9,000
			9,000				9,000
2002				2002
Dec.31	Machinery		9,000	Dec.31	Profit and Loss		9,000
			9,000				9,000

Working Note:

Depreciation (p.a.)	=	(1,08,000 + 12,000 x 12,000)
		12 years
	=	Rs 9,000 per annum

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Q3 :Reliance Ltd. Purchased a second hand machine for Rs 56,000 on October 01, 2001 and spent Rs 28,000 on its overhaul and installation before putting it to operation. It is expected that the machine can be sold for Rs 6,000 at the end of its useful life of 15 years. Moreover an estimated cost of Rs 1,000 is expected to be incurred to recover the salvage value of Rs 6,000. Prepare machine account and Provision for depreciation account for the first three years charging depreciation by fixed instalment Method. Accounts are closed on December 31, every year.
Answer :

Books of Reliance Ltd.
Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2010				2010
Oct.01	Bank		84,000
				Dec.31	Balance c/d		84,000
			84,000				84,000
2011				2011
Jan.01	Balance b/d		84,000
				Dec.31	Balance c/d		84,000
			84,000				84,000
2012				2012
Jan.01	Balance b/d		84,000
				Dec.31	Balance c/d		84,000
			84,000				84,000

Provision for Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
				2010
				Dec.31	Depreciation		1,316
2010
Dec.31	Balance c/d		1,316
			1,316				1,316
				2011
				Jan.01	Balance b/d		1,316
2011				Dec.31	Depreciation		5,267
Dec.31	Balance c/d		6,583
			6,583				6,583
				2012
				Jan.01	Balance b/d		6,583
2012				Dec.31	Depreciation		5,267
Dec.31	Balance c/d		11,850
			11,850				11,850
				2013
				Jan.01	Balance b/d		11,850

Working Note:

Depreciation (p.a.)	=	(56,000 + 28,000 – 6,000 + 1,000)
		15 years
	=	Rs 5,267 per annum

Note: As per the solution, the balance of provision for depreciation account, as on Jan.01, 2013 is Rs 11,850; whereas, as per the book, it is Rs 18,200.
However, if we ignore the scrap value and prepare provision for depreciation for 4 years, the answer would match to that of the book.

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Q4 :Berlia Ltd. Purchased a second hand machine for Rs 56,000 on July 01, 2001 and spent Rs 24,000 on its repair and installation and Rs 5,000 for its carriage. On September 01, 2002, it purchased another machine for Rs 2,50,000 and spent Rs 10,000 on its installation.
(a) Depreciation is provided on machinery @10% p.a on original cost method annually on December 31. Prepare machinery account and depreciation account from the year 2001 to 2004.
(b) Prepare machinery account and depreciation account from the year 2001 to 2004, if depreciation is provided on machinery @10% p.a. on written down value method annually on December 31.
Note*: There is a misprint in the question. The year 2001 has been misprinted as 2010. Accordingly, we have worked out the solution for the years 2001 to 2004.
Answer :

Books of Berlia Ltd. (a)
Machinery Account (Original Cost Method)
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Jul.01	Bank (i)		85,000	Dec.31	Depreciation		4,250
	(5,600 + 24,000 + 5,000)			Dec.31	Balance c/d		80,750
			85,000				85,000
2002				2002
Jan.01	Balance b/d (i)		80,750	Dec.31	Depreciation
Sep.01	Bank (ii)		2,60,000		(i) 8,500, (ii) 8,667		17,167
	(2,50,000 + 10,000)			Dec.31	Balance c/d		3,23,583
					(i) 72,250, (ii) 2,51,333
			3,40,750				3,40,750
2003				2003
Jan.01	Balance b/d		3,23,583	Dec.31	Depreciation
	(i) 72,250, (ii) 2,51,333				(i) 8,500, (ii) 26,000		34,500
				Dec.31	Balance c/d
					(i) 63,750, (ii) 2,25,333		2,89,083
			3,23,583				3,23,583
2004	Balance b/d			2004
Jan.01	(i) 63,750, (ii) 2,25,333		2,89,083	Dec.31	Depreciation
					(i) 8,500, (ii) 26,000		34,500
				Dec.31	Balance c/d
					(i) 55,250, (ii) 1,99,333		2,54,583
			2,89,083				2,89,083

Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Dec.31	Machinery		4,250	Dec.31	Profit and Loss		4,250
			4,250				4,250
2002				2002
Dec.31	Machinery			Dec.31	Profit and Loss		17,167
	(i) 8,500 (ii) 8,667		17,167
			17,167				17,167
2003				2003
Dec.31	Machinery			Dec.31	Profit and Loss		34,500
	(i) 8,500 (ii) 26,000		34,500
			34,500				34,500
2004				2004
Dec.31	Machinery		34,500	Dec.31	Profit and Loss		34,500
	(i) 8,500 (ii) 26,000		34,500				34,500

Working notes: Calculation of annual depreciation
(i) Depreciation (p.a.) on Machinery Purchased on July 01, 2001
= (56,000 + 24,000 + 5,000) × ¹⁰⁄₁₀₀
(ii) Depreciation (p.a.) on Machinery purchased on September 01, 2002.
= (2,50,000 + 10,000) × ¹⁰⁄₁₀₀

Machinery Account (Written Down Value method)
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Jul.01	Bank (i)		85,000	Dec.31	Depreciation		4,250
	(5,600 + 24,000 + 5,000)			Dec.31	Balance c/d		80,750
			85,000				85,000
2002				2002
Jan.01	Balance b/d (i)		80,750	Dec.31	Depreciation
Sep.01	Bank (ii)		2,60,000		(i) 8,075, (ii) 8,667		16,742
	(2,50,000 + 10,000)			Dec.31	Balance c/d
					(i) 72,675, (ii) 2,51,333		3,24,008
			3,40,750				3,40,750
2003				2003
Jan.01	Balance b/d		3,24,008	Dec.31	Depreciation
	(i) 72,675, (ii) 2,51,333				(i) 7,268, (ii) 25,133		32,401
				Dec.31	Balance c/d
					(i) 65,407, (ii) 2,26,200		2,91,607
			3,24,008				3,24,008
2004	Balance b/d			2004
Jan.01	(i) 65,407, (ii) 2,26,200		2,91,607	Dec.31	Depreciation
					(i) 6,540, (ii) 22,620		29,160
				Dec.31	Balance c/d
					(i) 58,867, (ii) 2,03,580		2,62,447
			2,91,607				2,91,607

Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Dec.31	Machinery		4,250	Dec.31	Profit and Loss		4,250
			4,250				4,250
2002				2002
Dec.31	Machinery			Dec.31	Profit and Loss		16,742
	(i) 8,075, (ii) 8,667		16,742
			16,742				16,742
2003				2003
Dec.31	Machinery			Dec.31	Profit and Loss		32,401
	(i) 7,268, (ii) 25,133		32,401
			32,401				32,401
2004				2004
Dec.31	Machinery			Dec.31	Profit and Loss		29,160
	(i) 6,540, (ii) 22,620		29,160
			29,160				29,160

 

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Q5 :Ganga Ltd. purchased a machinery on January 01, 2001 for Rs 5,50,000 and spent Rs 50,000 on its installation. On September 01, 2001 it purchased another machine for Rs 3,70,000. On May 01, 2002 it purchased another machine for Rs 8,40,000 (including installation expenses).
Depreciation was provided on machinery @10% p.a. on original cost method annually on December 31. Prepare:
(a) Machinery account and depreciation account for the years 2001, 2002, 2003 and 2004.
(b) If depreciation is accumulated in provision for Depreciation account then prepare machine account and provision for depreciation account for the years 2001, 2002, 2003 and 2004.
Note*: There is a misprint in the question. The year 2001 has been misprinted has 2010. Accordingly, we have worked out the solution for the years 2001 to 2004.
Answer :

Books of Ganga Ltd.
Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Jan.01	Bank (i)		6,00,000	Dec.31	Depreciation (i) 60,000 (ii) 12,333		72,333
	(5,50,000 + 50,000)			Dec.31	Balance c/d
Sep.01	Bank (ii)		3,70,000		(i) 5,40,000, (ii) 3,57,667		8,97,667
			9,70,000				9,70,000
2002				2002
Jan.01	Balance b/d			Dec.31	Depreciation
	(i) 5,40,000, (ii) 3,57,667		8,97,667		(i) 60,000, (ii) 37,000,
May.01	Bank (iii)		8,40,000		(iii) 56,000		1,53,000
				Dec.31	Balance c/d
					(i) 4,80,000 (ii) 3,20,667,
					(iii) 7,84,000		15,84,667
			17,37,667				17,37,667
2003				2003
Jan.01	Balance b/d			Dec.31	Depreciation
	(i) 4,80,000, (ii) 3,20,667				(i) 60,000, (ii) 37,000,
	(iii) 7,84,000		15,84,667	Dec.31	(iii) 84,000		1,81,000
					Balance c/d
					(i) 4,20,000, (ii) 2,83,667,
					(iii) 7,00,000		14,03,667
			15,84,667				15,84,667
2004				2004
Jan.01	Balance b/d			Dec.31	Depreciation
	(i) 4,20,000, (ii) 2,83,667,				(i) 60,000, (ii) 37,000,
	(iii) 7,00,000		14,03,667		(iii) 84,000		1,81,000
				Dec.31	Balance c/d
					(i) 3,60,000, (ii) 2,46,667,
					(iii) 6,16,000		12,22,667
			14,03,667				14,03,667

Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Dec.31	Machinery		72,333	Dec.31	Profit and Loss		72,333
			72,333				72,333
2002				2002
Dec.31	Machinery		1,53,000	Dec.31	Profit and Loss		1,53,000
			1,53,000				1,53,000
2003				2003
Dec.31	Machinery		1,81,000	Dec.31	Profit and Loss		1,81,000
			1,81,000				1,81,000
2004				2004
Dec.31	Machinery		1,81,000	Dec.31	Profit and Loss		1,81,000
			1,81,000				1,81,000

Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Jan.01	Bank (i)		6,00,000
	(5,50,000 + 50,000)			Dec.31	Balance c/d
Sep.01	Bank (ii)		3,70,000				9,70,000
			9,70,000				9,70,000
2002				2002
Jan.01	Balance b/d
	(i) 6,00,000 (ii) 3,70,000		9,70,000
May.01	Bank (iii)		8,40,000	Dec.31	Balance c/d		18,10,000
			18,10,000				18,10,000
2003				2003
Jan.01	Balance b/d			Dec.31	Balance c/d		18,10,000
	(i) 6,00,000 (ii) 3,70,000
	(iii) 8,40,000		18,10,000
			18,10,000				18,10,000
2004				2004
Jan.01	Balance b/d			Dec.31	Balance c/d		18,10,000
	(i) 6,00,000 (ii) 3,70,000
	(iii) 8,40,000		18,10,000
			18,10,000				18,10,000

Provision for Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Dec.31	Balance c/d		72,333	Dec.31	Depreciation		72,333
			72,333				72,333
				2002
2002				Jan.01	Balance b/d		72,333
Dec.31	Balance c/d		2,25,333	Dec.31	Depreciation		1,53,000
			2,25,333				2,25,333
				2003
2003				Jan.01	Balance b/d		2,25,333
Dec.31	Balance c/d		4,06,333	Dec.31	Depreciation		1,81,000
			4,06,333				4,06,333
				2004
2004				Jan.01	Balance b/d		4,06,333
Dec.31	Balance c/d		5,87,333	Dec.31	Depreciation		1,81,000
			5,87,333				5,87,333

 

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Q6 :Azad Ltd. purchased furniture on October 01, 2002 for Rs 4,50,000. On March 01, 2003 it purchased another furniture for Rs 3,00,000. On July 01, 2004 it sold off the first furniture purchased in 2002 for Rs 2,25,000. Depreciation is provided at 15% p.a. on written down value method each year. Accounts are closed each year on March 31. Prepare furniture account, and accumulated depreciation account for the years ended on March 31, 2003, March 31, 2004 and March 31,2005. Also give the above two accounts if furniture disposal account is opened.
Note*: There is a misprint in the question. The books of accounts are to be prepared for the years ending March 31, 2003, March 31, 2004 and March 31, 2005. The date March 31, 2005 has been misprinted as March 31, 2010. Accordingly, we have worked out the solution for the years 2002-03, 2003-04 and 2004-05.
Answer :

Books of Azad Ltd.
Furniture Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2002				2003
Oct.01	Bank (i)		4,50,000
2003				Mar.31	Balance c/d		7,50,000
Mar.01	Bank (ii)		3,00,000
			7,50,000				7,50,000
2003				2004
Apr.01	Balance b/d
	(i) 4,50,000, (ii) 3,00,000		7,50,000	Mar.31	Balance c/d		7,50,000
			7,50,000				7,50,000
2004				2004
Apr.01	Balance b/d		7,50,000	July 01	Furniture Disposal		4,50,000
	(i) 4,50,000, (ii) 3,50,000			2005
				Mar.31	Balance c/d		3,00,000
			7,50,000				7,50,000

Accumulated Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2003				2003
Mar.31	Balance c/d		37,500	Mar.31	Depreciation
					(i) 33,750, (ii) 3,750		37,500
			37,500				37,500
2004				2003
Mar.31	Balance c/d		1,44,376	Apr.01	Balance b/d		37,500
				2004
				Mar.31	Depreciation
					(i) 62,438, (ii) 44,378		1,06,876
			1,44,376				1,44,376
2004				2004
July.01	Furniture Disposal		1,09,456	Apr.01	Balance b/d		1,44,376
2005				July.01	Depreciation (i)		13,268
Mar.31	Balance c/d		85,960	2005
				Mar.31	Depreciation (ii)		37,772
			1,95,416				1,95,416

Furniture Disposal Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2004				2004
Jul.01	Furniture		4,50,000	Jul.01	Accumulated Dep.		1,09,456
				Jul.01	Bank		2,25,000
				Jul.01	Profit and Loss (Loss)		1,15,544
			4,50,000				4,50,000

Working Note:
Furniture (i)

Years	Opening Balance		Depreciation			Closing Balance
2002 – 2003	4,50,000	–	33,750		=	4,16,250
2003 – 2004	4,16,250	–	62,438		=	3,53,812
2004	3,53,812	–	13,268	(3 months)	=	3,40,544
			1,09,456
Balance on July 01, 2004	3,40,544
Less: Sale on July 01, 2004	(2,25,000)
Loss on sale of furniture	1,15,544

 

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Q7 : M/s Lokesh Fabrics purchased a Textile Machine on April 01, 2001 for Rs 1,00,000. On July 01, 2002 another machine costing Rs 2,50,000 was purchased . The machine purchased on April 01, 2001 was sold for Rs 25,000 on October 01, 2005. The company charges depreciation @15% p.a. on straight line method. Prepare machinery account and machinery disposal account for the year ended March 31, 2006.
Notes
There is a misprint in the question in the dates. The year 2001 has been mistakenly written as 2010.
The machinery was sold on October 01, 2005. In the book, it has been misprinted as October 01, 2010.
The books of accounts are to be prepared for the year ended March 31, 2006 and not March 31, 2011.
Answer :

Books of M/s. Lokesh Fabrics
Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2002
Apr.01	Bank (i)		1,00,000	Mar.31	Depreciation		15,000
				Mar.31	Balance c/d		85,000
			1,00,000				1,00,000
2002				2003
Apr.01	Balance b/d		85,000	Mar.31	Depreciation
July.01	Bank (ii)		2,50,000		(i) 15,000 + 28,125		43,125
				Mar.31	Balance c/d
					(i) 70,000, (ii) 2,21,875		2,91,875
			3,35,000				3,35,000
2003				2004
Apr.01	Balance b/d			Mar.31	Depreciation
	(i) 70,000, (ii) 2,21,875		2,91,875		(i) 15,000, (ii) 37,500		52,500
				Mar.31	Balance c/d
					(i) 55,000, (ii) 1,84,375		2,39,375
			2,91,875				2,91,875
2004				2005
Apr.01	Balance b/d			Mar.31	Depreciation
	(i) 5,500, (ii) 1,84,375		2,39,375		(i) 15,000, (ii) 37,500		52,500
				Mar.31	Balance c/d
					(i) 40,000, (ii) 1,46,875		1,86,875
			2,39,375				2,39,375
2005				2005
Apr.01	Balance b/d			Oct.01	Depreciation		7,500
	(i) 40,000, (ii) 1,46,875		1,86,875	Oct.01	Machinery Disposal		32,500
				2006
				Mar.31	Depreciation (ii)		37,500
				Mar.31	Balance c/d		1,09,375
			1,86,875				1,86,875

Machinery Disposal Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2005				2005
Oct.01	Machinery		32,500	Oct.01	Bank		25,000
				Oct.01	Profit and Loss		7,500
			32,500				32,500

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Q8 : The following balances appear in the books of Crystal Ltd, on Jan 01, 2005
Rs Machinery account on 15,00,000
Provision for depreciation account 5,50,000
On April 01, 2005 a machinery which was purchased on January 01, 2002 for Rs 2,00,000 was sold for Rs 75,000. A new machine was purchased on July 01, 2005 for Rs 6,00,000. Depreciation is provided on machinery at 20% p.a. on Straight line method and books are closed on December 31 every year. Prepare the machinery account and provision for depreciation account for the year ending December 31, 2005.
Note*: There is a misprint in the question. The year 2005 has been mistakenly written as 2010. Accordingly, we have worked out the solution for the year 2005.
Answer:

Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2005				2005
Jan.01	Balance b/d		15,00,000	Apr.01	Machinery Disposal		2,00,000
	(13,00,000 + 2,00,000)
Jul.01	Bank		6,00,000	Dec.31	Balance c/d		19,00,000
			21,00,000				21,00,000

 

Provision for Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2005				2005
Apr.01	Machinery Disposal		1,30,000	Jan.01	Balance b/d		5,50,000
Apr.01	Balance c/d		7,50,000	Apr.01	Depreciation		10,000
				Dec.31	Depreciation
					(i) 2,60,000, (ii) 60,000		3,20,000
			8,80,000				8,80,000

Working Note:
Machine Sold on July 01, 2005

 

(i)		Years	Opening Balance				Depreciation		Closing Balance
	2002		2,00,000			–	40,000	=	1,60,000
	2003		1,60,000			–	40,000	=	1,20,000
	2004		1,20,000			–	40,000	=	80,000
	2005		80,000			–	10,000	=	70,000
			Accumulated Depreciation			=	1,30,000
Value on April 01, 2005			=		(70,000)
Less: Sale			=		75,000
Profit on sale of Machinery					5,000

Machinery Disposal Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2005				2005
Apr.01	Machinery		2,00,000	Apr.01	Provision for Depreciation		1,30,000
Apr.01	Profit and Loss (Profit)		5,000	Apr.01	Bank		75,000
			2,05,000				2,05,000

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Q9 :M/s. Excel Computers has a debit balance of Rs 50,000 (original cost Rs 1,20,000) in computers account on April 01, 2000. On July 01, 2000 it purchased another computer costing Rs 2,50,000. One more computer was purchased on January 01, 2001 for Rs 30,000. On April 01, 2004 the computer which has purchased on July 01, 2000 became obsolete and was sold for Rs 20,000. A new version of the IBM computer was purchased on August 01, 2004 for Rs 80,000. Show Computers account in the books of Excel Computers for the years ended on March 31, 2001, 2002, 2003, 2004 and 2005. The computer is depreciated @10 p.a. on straight line method basis.
Note*: There is a misprint in the question. The year 2001 has been mistakenly written as 2010. Accordingly, we have worked out the solution for the years ending March 31, 2001 to March 31, 2005.
Answer :

Books of M/s Excel Computers
Computer Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2000				2001
Apr.01	Balance b/d (i)		50,000	Mar.31	Depreciation
Jul.01	Bank (ii)		2,50,000		(i) 12,000, (ii) 18,750,
2001					(iii) 750		31,500
Jan.01	Bank (iii)		30,000	Mar.31	Balance c/d
					(i) 38,000, (ii) 2,31,250,
					(iii) 29,250		2,98,500
			3,30,000				3,30,000
2001				2002
Apr.01	Balance b/d			Mar.31	Depreciation
	(i) 38,000, (ii) 2,31,250,				(i) 12,000 (ii) 25,000,
	(iii) 29,250		2,98,500		(iii) 3,000		40,000
				Mar.31	Balance c/d
					(i) 26,000 (ii) 2,06,250,
					(iii) 26,250		2,58,500
			2,98,500				2,98,500
2002				2003
Apr.01	Balance b/d			Mar.31	Depreciation
	(i) 26,000 (ii) 2,06,250,				(i) 12,000, (ii) 25,000,		40,000
	(iii) 26,250		2,58,500	Mar.31	(iii) 3,000
					Balance c/d
					(i) 14,000, (ii) 1,81,250,
					(iii) 23,250		2,18,500
			2,58,500				2,58,500
2003				2004
Apr.01	Balance b/d			Mar.31	Depreciation
	(i) 14,000, (ii) 1,81,250,				(i) 12,000, (ii) 25,000,		40,000
	(iii) 23,250		2,18,500		(iii) 3,000
				Mar.31	Balance c/d
					(i) 2,000, (ii) 1,56,250,
					(iii) 20,250		1,78,500
			2,18,500				2,18,500
2004				2004
Apr.01	Balance c/d			Apr.01	Bank (ii)		20,000
	(i) 2,000, (ii) 1,56,250,			Apr.01	Profit and Loss (Loss)		1,36,250
	(iii) 20,250		1,78,500	2005
Aug.01	Bank (iv)		80,000	Mar.31	Depreciation		10,333
					(i) 2,000, (iii) 3,000, (iv) 5,333
				Mar.31	Balance c/d
					(iii) 17,250, (iv) 74,667		91,917
			2,58,500				2,58,500

Note: As per the solution, the closing balance, as on 31^st March, 2005 is Rs 91,917; however, as per the book it is Rs 80,583.

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Q10 :Carriage Transport Company purchased 5 trucks at the cost of Rs 2,00,000 each on April 01, 2001. The company writes off depreciation @ 20% p.a. on original cost and closes its books on December 31, every year. On October 01, 2003, one of the trucks is involved in an accident and is completely destroyed. Insurance company has agreed to pay Rs 70,000 in full settlement of the claim. On the same date the company purchased a second hand truck for Rs 1,00,000 and spent Rs 20,000 on its overhauling. Prepare truck account and provision for depreciation account for the three years ended on December 31, 2003. Also give truck account if truck disposal account is prepared.
Note*: There is a misprint in the question. The date of purchase of 5 trucks should be April 01, 2001. It has been mistakenly written as April 01, 2010.
Answer:

Books of Carriage Transport Company
Truck Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Apr.01	Bank		10,00,000	Dec.31	Balance c/d		10,00,000
			10,00,000				10,00,000
2002				2002
Jan.01	Balance b/d		10,00,000	Dec.31	Balance c/d		10,00,000
			10,00,000				10,00,000
2003				2003
Jan.01	Balance b/d		10,00,000	Oct.01	Truck Disposal		2,00,000
Oct.01	Bank		1,20,000	Dec.31	Balance c/d		9,20,000
			11,20,000				11,20,000

Provision for Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Dec.31	Balance c/d		1,50,000	Dec.31	Depreciation		1,50,000
			1,50,000				1,50,000
2002				2002
Dec.31	Balance c/d		3,50,000	Jan.01	Balance c/d		1,50,000
				Dec.31	Depreciation		2,00,000
			3,50,000				3,50,000
2003				2003
Oct.01	Truck Disposal		1,00,000	Jan.01	Balance b/d		3,50,000
Oct.01	Balance c/d		4,46,000	Oct.01	Depreciation (9 Months)		30,000
				Dec.31	Depreciation
					(1,60,000 + 6,000)		1,66,000
			5,46,000				5,46,000

Truck Disposal Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2003				2003
Oct.01	Truck		2,00,000	Oct.01	Provision for Depreciation		1,00,000
				Oct.01	Insurance Co. (Insurance Claim)		70,000
				Oct.01	Profit and Loss (Loss)		30,000
			2,00,000				2,00,000

Working Note
Truck involved in accident

	Opening Balance					Depreciation		Closing Balance
Apr.01, 2001	2,00,000				–	30,000	=	1,70,000
Jan.01, 2002	1,70,000				–	40,000	=	1,30,000
Jan.01, 2003	1,30,000				–	30,000	=	1,00,000
	Accumulated Depreciation				=	1,00,000
Value on Oct.01, 2003		=	1,00,000
Less: Insurance Claim		=	70,000
Loss on Accident			30,000

 

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Q11 :Saraswati Ltd. purchased a machinery costing Rs 10,00,000 on January 01, 2001. A new machinery was purchased on 01 May, 2002 for Rs 15,00,000 and another on July 01, 2004 for Rs 12,00,000. A part of the machinery which originally cost Rs 2,00,000 in 2001 was sold for Rs 75,000 on October 31, 2004. Show the machinery account, provision for depreciation account and machinery disposal account from 2001 to 2005 if depreciation is provided at 10% p.a. on original cost and account are closed on December 31, every year.
Answer :

Books of Saraswati Ltd. Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Jan.01	Bank (i)		10,00,000
	(8,00,000 + 2,00,000)			Dec.31	Balance c/d		10,00,000
			10,00,000				10,00,000
2002				2002
Jan.01	Balance b/d		10,00,000	Dec.31	Balance c/d		25,00,000
May.01	Bank (ii)		15,00,000
			25,00,000				25,00,000
2003				2003
Jan.01	Balance b/d		25,00,000	Dec.31	Balance c/d		25,00,000
			25,00,000				25,00,000
2004				2004
Jan.01	Balance b/d		25,00,000	Oct.31	Machinery Disposal		2,00,000
Jul.01	Bank (ii)		12,00,000	Dec.31	Balance c/d
					(i) 8,00,000 (ii) 15,00,000
					(iii) 12,00,000		35,00,000
			37,00,000				37,00,000
2005				2005
Jan.01	Balance c/d		35,00,000	Dec.31	Balance c/d		35,00,000
			35,00,000				35,00,000

Provision for Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Dec.31	Balance c/d		1,00,000
				Dec.31	Depreciation (i)		1,00,000
			1,00,000				1,00,000
2002				2002
Dec.31	Balance c/d		3,00,000	Jan.01	Balance c/d		1,00,000
				Dec.31	Depreciation
					(i) 1,00,000 (ii) 1,00,000		2,00,000
					(8 months)
			3,00,000				3,00,000
2003				2003
Dec.31	Balance b/d		5,50,000	Jan.01	Balance c/d		3,00,000
				Dec.31	Depreciation		2,50,000
			5,50,000		(i) 1,00,000 (ii) 1,50,000,		5,50,000
2004				2004
Oct.31	Machinery Disposal		76,667	Jan.01	Balance b/d		5,50,000
Dec.31	Balance c/d		7,80,000	Oct.31	Depreciation		16,667
				Dec.31	Depreciation
					(i) 80,000, (ii) 1,50,000,
					(iii) 60,000		2,90,000
			8,56,667				8,56,667
2005				2005
Dec.31	Balance c/d		11,30,000	Jan.01	Balance c/d		7,80,000
				Dec.31	Depreciation
					(i) 80,000, (ii) 1,50,000,
					(iii) 1,20,000		3,50,000
			11,30,000				11,30,000

Machinery Disposal Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2004				2004
Oct.31	Machinery		2,00,000	Oct.31	Depreciation		76,667
				Oct.31	Bank		75,000
				Oct.31	Profit and Loss (Loss)		48,333
			2,00,000				2,00,000

Working Note:

	Opening Balance		Depreciation		Closing Balance
2001	2,00,000	–	20,000	=	1,80,000
2002	1,80,000	–	20,000	=	1,60,000
2003	1,60,000	–	20,000	=	1,40,000
2004	1,40,000	–	16,667	=	1,23,333
	Accumulated Depreciation		76,667

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Q12 :On July 01, 2001 Ashwani purchased a machine for Rs 2,00,000 on credit. Installation expenses Rs 25,000 are paid by cheque. The estimated life is 5 years and its scrap value after 5 years will be Rs 20,000. Depreciation is to be charged on straight line basis. Show the journal entry for the year 2001 and prepare necessary ledger accounts for first three years.
Answer :

Books of Ashwani Journal
Date			Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
2010
Jul.01	Machinery A/c			Dr.		2,25,000
		To Creditors for Machinery A/c					2,00,000
		To Bank A/c					25,000
	(Machinery bought on credit and Rs 25,000 paid for installation through cheque)
2010
Dec.31	Depreciation A/c			Dr.		20,500
		To Machinery A/c					20,500
	(Depreciation charged on Machinery)
2010
Dec.31	Profit and Loss A/c			Dr.		20,500
		To Depreciation A/c					20,500
	(Depreciation transferred to Profit and Loss Account)
2011
Dec.31	Depreciation A/c			Dr.		41,000
		To Machinery A/c					41,000
	(Depreciation charged on Machinery)
2011
Dec.31	Profit and Loss A/c			Dr.		41,000
		To Depreciation A/c					41,000
	(Depreciation transferred to Profit and Loss Account)
2012
Dec.31	Depreciation A/c			Dr.		41,000
		To Machinery A/c					41,000
	(Depreciation charged on Machinery)
2012
Dec.31	Profit and Loss A/c			Dr.		41,000
		To Depreciation A/c					41,000
	(Depreciation transferred to Profit and Loss Account)

Ledger Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2010				2010
Jul.01	Creditors for Machinery		2,00,000	Dec.31	Depreciation		20,500
Jul.01	Bank		25,000	Dec.31	Balance c/d		2,04,500
			2,25,000				2,25,000
2011				2011
Jan.01	Balance b/d		2,04,500	Dec.31	Depreciation		41,000
				Dec.31	Balance c/d		1,63,500
			2,04,500				2,04,500
2012				2012
Jan.01	Balance c/d		1,63,500	Dec.31	Depreciation		41,000
				Dec.31	Balance c/d		1,22,500
			1,63,500				1,63,500

Working Note:
Calculation of annual depreciation
Depreciation (p.a.) = ^{(2,00,000 + 25,000 – 20,000)}⁄₅
= Rs 41,000 per annum

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Q13 :On October 01, 2000, a Truck was purchased for Rs 8,00,000 by Laxmi Transport Ltd. Depreciation was provided at 15% p.a. on the diminishing balance basis on this truck. On December 31, 2003 this Truck was sold for Rs 5,00,000. Accounts are closed on 31st March every year. Prepare a Truck Account for the four years
Answer :

Books of Laxmi Transport Ltd. Truck Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2000				2001
Oct.01	Bank		8,00,000	Mar.31	Depreciation		60,000
				Mar.31	Balance c/d		7,40,000
			8,00,000				8,00,000
2001				2002
Apr.01	Balance b/d		7,40,000	Mar.31	Depreciation		1,11,000
				Mar.31	Balance c/d		6,29,000
			7,40,000				7,40,000
2002				2003
Apr.01	Balance b/d		6,29,000	Mar.31	Depreciation		94,350
				Mar.31	Balance c/d		5,34,650
			6,29,000				6,29,000
2003				2003
Apr.01	Balance b/d		5,34,650	Dec.31	Depreciation (9 months)		60,148
Dec.31	Profit and Loss (Profit)		25,498	Dec.31	Bank		5,00,000
			5,60,148				5,60,148

Note: As per the solution, the profit on the sale of truck, as on December 31, 2003 is Rs 25,498; however, the answer given in the book is Rs 55,548.

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Q14 :Kapil Ltd. purchased a machinery on July 01, 2001 for Rs 3,50,000. It purchased two additional machines, on April 01, 2002 costing Rs 1,50,000 and on October 01, 2002 costing Rs 1,00,000. Depreciation is provided @10% p.a. on straight line basis. On January 01, 2003, first machinery become useless due to technical changes. This machinery was sold for Rs 1,00,000, prepare machinery account for 4 years on the basis of calendar year.
Note: There is a misprint in the question. The year 2001 has been mistakenly written as 2010.
Answer :

Books of Kapil Ltd. Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Jul.01	Bank (i)		3,50,000	Dec.31	Depreciation (6 months)		17,500
				Dec.31	Balance c/d		3,32,500
			3,50,000				3,50,000
2002				2002
Jan.01	Balance c/d		3,32,500	Dec.31	Depreciation
Apr.01	Bank (ii)		1,50,000		(i) 35,000 (ii) 11,250 (9 months),
Oct.01	Bank (iii)		1,00,000		(iii) 2,500 (3 months)		48,750
				Dec.31	Balance c/d
					(i) 2,97,500, (ii) 1,38,750,
					(iii) 97,500		5,33,750
			5,82,500				5,82,500
2003				2003
Jan.01	(i) 2,97,500, (ii) 1,38,750,			Jan.01	Bank (i)		1,00,000
	(iii) 97,500		5,33,750	Jan.01	Profit and Loss (Loss)		1,97,500
				Dec.31	Depreciation
					(ii) 15,000 (iii) 10,000		25,000
				Dec.31	Balance c/d
					(ii) 1,23,750, (iii) 87,500		2,11,250
			5,33,750				4,33,750
2004				2004
Jan.01	Balance c/d		2,11,250	Dec.31	Depreciation
	(ii) 1,23,750, (iii) 87,500			Dec.31	(ii) 15,000, (iii) 10,000		25,000
					Balance c/d
					(ii) 1,08,750, (iii) 77,500		1,86,250
			2,11,250				2,11,250
2005
Jan.01	Balance b/d		1,86,250

 

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Q15 :On January 01, 2001, Satkar Transport Ltd, purchased 3 buses for Rs 10,00,000 each. On July 01, 2003, one bus was involved in an accident and was completely destroyed and Rs 7,00,000 were received from the Insurance Company in full settlement. Depreciation is writen off @15% p.a. on diminishing balance method. Prepare bus account from 2001 to 2004. Books are closed on December 31 every year.
Note: There is a misprint in the question. The year 2001 has been mistakenly written as 2010. Also, the books of accounts are to be prepared from 2001 to 2004. In the book, it is misprinted as 2010 to 2004.
Answer:

Books of Satkar Transport Ltd. Bus Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2001
Jan.01	Bank		30,00,000	Dec.31	Depreciation		4,50,000
				Dec.31	Balance c/d		25,50,000
			30,00,000				30,00,000
2002				2002
Jan.01	Balance b/d		25,50,000	Dec.31	Depreciation		3,82,500
				Dec.31	Balance c/d		21,67,500
			25,50,000				25,50,000
2003				2003
Jan.01	Balance b/d		21,67,500	July.01	Depreciation (6 months)		54,187
July.01	Profit and Loss (Profit)		31,687	July.01	Insurance Co. (Insurance claim)		7,00,000
				Dec.31	Depreciation		2,16,750
				Dec.31	Balance c/d		12,28,250
			21,99,187				21,99,187
2004				2004
Jan.01	Balance c/d		12,28,250	Dec.31	Depreciation		1,84,237
				Dec.31	Balance c/d		10,44,013
			12,28,250				12,28,250

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Q16 :On October 01, 2001 Juneja Transport Company purchased 2 Trucks for Rs 10,00,000 each. On July 01, 2003, One Truck was involved in an accident and was completely destroyed and Rs 6,00,000 were received from the insurance company in full settlement. On December 31, 2003 another truck was involved in an accident and destroyed partially, which was not insured. It was sold off for Rs 1,50,000. On January 31, 2004 company purchased a fresh truck for Rs 12,00,000. Depreciation is to be provided at 10% p.a. on the written down value every year. The books are closed every year on March 31. Give the truck account from 2001 to 2004.
Note*: There is a misprint in the question. The year 2001 has been mistakenly written as 2010. Accordingly, the books of accounts are to be prepared for the years 2001 to 2004. In the book, it is misprinted as 2010 to 2004.
Answer :

 

Books of Juneja Transport Company Truck Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2001				2002
Oct.01	Bank		20,00,000	Mar.31	Depreciation		1,00,000
				Mar.31	Balance c/d		19,00,000
			20,00,000				20,00,000
2002				2003
Apr.01	Balance b/d		19,00,000	Mar.31	Depreciation		1,90,000
				Mar.31	Balance c/d		17,10,000
			19,00,000				19,00,000
2003				2003
Apr.01	Balance b/d		17,10,000	Jul.01	Depreciation (3 Month on one Truck)		21,375
				Jul.01	Bank (Insurance Claim)		6,00,000
2004				Jul.01	Profit and Loss (loss)		2,33,625
Jan.31	Bank		12,00,000
				Dec.31	Depreciation (9 Month on II Truck)		64,125
				Dec.31	Bank		1,50,000
				Dec.31	Profit and Loss (Loss)		6,40,875
				2004
				Mar.31	Depreciation (2 Months)		20,000
				Mar.31	Balance c/d		11,80,000
			29,10,000				29,10,000

Note: As per solution, loss on truck one is as Rs 2,33,625; however, as per NCERT book, loss is of Rs 1,41,000.
Truck – 1

	Opening Balance	–	Depreciation	=	Closing Balance
Oct.01, 2001	10,00,000	–	50,000 (6 Months)	=	9,50,000
Apr.01, 2002	9,50,000	–	95,000	=	8,55,000
Apr.01, 2003	8,55,000	–	21,375 (3 Months)	=	8,33,625

Value on July 01, 2003	=	8,33,625
Insurance Claim	=	– 6,00,000
Loss on Truck – 1	=	Rs 2,33,625

Truck – 2

	Opening Balance	–	Depreciation	=	Closing Balance
Oct.01, 2002	10,00,000	–	50,000 (6 Months)	=	9,50,000
Apr.01, 2002	9,50,000	–	95,000	=	8,55,000
Apr.01, 2003	8,55,000	–	64,125 (9 Months)	=	7,90,875

Value on Dec.31, 2003	=	7,90,875
Sale of Truck	=	– 1,50,000
Loss on Truck – 2	=	Rs 6,40,875

 

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Q17 : A Noida based Construction Company owns 5 cranes and the value of this asset in its books on April 01, 2001 is Rs 40,00,000. On October 01, 2001 it sold one of its cranes whose value was Rs 5,00,000 on April 01, 2001 at a 10% profit. On the same day it purchased 2 cranes for Rs 4,50,000 each. Prepare cranes account. It closes the books on December 31 and provides for depreciation on 10% written down value.
Answer :

Cranes Account
Dr.											Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars					J.F.	Amount Rs
2010				2010
Apr.01	Machinery (35,00,000 + 5,00,000)		40,00,000	Oct.01	Depreciation						25,000
Oct.01	Profit and Loss (Profit)		47,500	Oct.01	Bank						5,22,500
Oct.01	Bank		9,00,000	Dec.31	Depreciation
					35,00,000 ×	10	×	9	= 2,62,500
						100		12
					9,00,000 ×	10	×	6	= 22,500		2,85,000
						100		12
				Dec.31	Balance c/d
					32,37,500 + 8,77,500						41,15,000
			49,47,500								49,47,500

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Q18 :Shri Krishan Manufacturing Company purchased 10 machines for Rs 75,000 each on July 01, 2000. On October 01, 2002, one of the machines got destroyed by fire and an insurance claim of Rs 45,000 was admitted by the company. On the same date another machine is purchased by the company for Rs 1,25,000.
The company writes off 15% p.a. depreciation on written down value basis. The company maintains the calendar year as its financial year. Prepare the machinery account from 2000 to 2003.
Answer:

Books of Shri Krishna Manufacturing Company Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2000				2000
Jul.01	Bank		7,50,000	Dec.31	Depreciation		56,250
				Dec.31	Balance c/d		6,93,750
			7,50,000				7,50,000
2001				2001
Jan.01	Balance b/d		6,93,750	Dec.31	Depreciation		1,04,063
				Dec.31	Balance c/d		5,89,687
			6,93,750				6,93,750
2002				2002
Jan.01	Balance b/d		5,89,687	Oct.01	Depreciation (9 months		6,634
					for one machine)
Oct.01	Bank		1,25,000	Oct.01	Insurance Co.		45,000
				Oct.01	Profit and Loss (Loss)		7,335
				Dec.31	Depreciation
					(i) 79,608, (ii) 4,688		84,296
				Dec.31	Balance c/d
					(i) 4,51,110, (ii) 1,20,312		5,71,422
			7,14,687				7,14,687
2003				2003
Jan.01	Balance b/d			Dec.31	Depreciation
	(i) 4,51,110, (ii) 1,20,312		5,71,422		(i) 67,667, (ii) 18,047		85,714
				Dec.31	Balance c/d
					(i) 3,83,443, (ii) 1,02,265		4,85,708
			5,71,422				5,71,422

Working Note:
Machine Costing Rs 75,000 sold on Oct.01, 2002

	Opening Balance	–	Depreciation	=	Closing Balance
Jul.01, 2000	75,000	–	5,625 (6 months)	=	69,375
Jan.01, 2001	69,375	–	10,406	=	58,969
Jan.01, 2002	58,969	–	6,634 (9 months)	=	52,335

Value on Oct.01, 2002		52,335
Insurance Claim		45,000
Loss		Rs 7,335

Note: As per the solution, the loss on sale of machine is Rs 7,335 and the closing balance, as on Dec.31, 2003, is Rs 4,85,708; however, according to the answer given in the book, the loss after insurance claimed is Rs 7,735 and the closing balance is Rs 6,30,393.

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Q19 :On January 01, 2000, a Limited Company purchased machinery for Rs 20,00,000. Depreciation is provided @15% p.a. on diminishing balance method. On March 01, 2002, one fourth of machinery was damaged by fire and Rs 40,000 were received from the insurance company in full settlement. On September 01, 2002 another machinery was purchased by the company for Rs 15,00,000.
Write up the machinery account from 2002 to 2003. Books are closed on December 31, every year.
Answer:

Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2002				2002
Jan.01	Balance b/d (i) (10,83,750 + 3,61,250)		14,45,000	Mar.01	Depreciation (1/4 Machine for 2 Months)		9,031
Sep.01	Bank (ii)		15,00,000	Mar.01	Bank		40,000
				Mar.01	Profit and Loss		3,12,219
				Dec.31	Depreciation (i)
					(i) 1,62,563 (3/4th of  machine), (ii) 75,000		2,37,563
				Dec.31	Balance c/d
					(i) 9,21,187, (ii) 14,25,000		23,46,187
			29,45,000				29,45,000
2003				2003
Jan.01	Balance b/d			Dec.31	Depreciation
	(i) 9,21,187, (ii) 14,25,000		23,46,187	Dec.31	(i) 1,38,177, (ii) 2,13,750		3,51,927
					Balance c/d
					(i) 7,83,009, (ii) 12,11,250		19,94,260
			23,46,187				23,46,187

Working Note:
Machine (i)

Years	January 01		Depreciation (15% p.a.)	=	Closing Balance
2000	20,00,000	–	3,00,000	=	17,00,000
2001	17,00,000	–	2,55,000	=	14,45,000
2002	14,45,000

1/4^th of Machine (i)

Years	Opening Balance		Depreciation (15% p.a.)	=	Closing Balance
2000	5,00,000	–	75,000	=	4,25,000
2001	4,25,000	–	63,750	=	3,61,250
2002	3,61,250	–	9,031 (2 months)	=	3,52,219

Value on 1 Mar. 2002	=	3,52,219
Insurance Claim	=	40,000
Loss		Rs 3,12,219

Note: As per the solution, the loss by fire after
adjusting claim is Rs 3,12,219; but, as per the answer given in the book the loss is Rs 12,219.
If the amount of insurance claim received would have been Rs 3,40,000, then the loss on settle of the insurance claim would have matched with the answer given in the book.

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Q20 :A Plant was purchased on 1st July, 2000 at a cost of Rs 3,00,000 and Rs 50,000 were spent on its installation. The depreciation is written off at 15% p.a. on the straight line method. The plant was sold for Rs 1,50,000 on October 01, 2002 and on the same date a new Plant was installed at the cost of Rs 4,00,000 including purchasing value. The accounts are closed on December 31 every year.
Show the machinery account and provision for depreciation account for 3 years
Answer :

Plant Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2000				2000
July.01	Bank		3,50,000	Dec.31	Balance c/d		3,50,000
			3,50,000				3,50,000
2001				2001
Jan.01	Balance b/d		3,50,000
				Dec.31	Balance c/d		3,50,000
			3,50,000				3,50,000
2002				2002
Jan.01	Balance b/d		3,50,000	Oct.01	Provision for Depreciation		1,18,125
Oct.01	Bank		4,00,000	Oct.01	Bank		1,50,000
				Oct.01	Profit and Loss		81,875
				Dec.31	Balance c/d		4,00,000
			7,50,000				7,50,000

Provision for Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2000				2000
Dec.31	Balance c/d		26,250	Dec.31	Depreciation		26,250
			26,250				26,250
2001				2001
Dec.31	Balance b/d		78,750	Jan.01	Balance c/d		26,250
				Dec.31	Depreciation		52,500
			78,750				78,750
2002				2003
Oct.01	Plant		1,18,125	Jan.01	Balance b/d		78,750
Dec.31	Balance c/d		15,000	Oct.01	Depreciation (i) (9 months)		39,375
				Dec.31	Depreciation (ii) (3 months)		15,000
			1,33,125				1,33,125

 

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Q21 :An extract of Trial balance from the books of Tahiliani and Sons Enterprises on December 31 2005 is given below:

Name of the Account	Debit Amount Rs	Credit Amount Rs
Sundry debtors	50,000
Bad debts	6,000
Provision for doubtful debts		4,000

Additional Information:
· Bad Debts proved bad; however, not recorded amounted to Rs 2,000.
· Provision is to be maintained at 8% of debtors
Give necessary accounting entries for writing off the bad debts and creating the provision for doubtful debts account. Also, show the necessary accounts.
Answer:

Date		Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
	Bad Debt A/c		Dr.		2,000
		To Debtors A/c				2,000
	(Further bad debt charged from Debtors Account)
	Provision for Doubtful Debt A/c		Dr.		8,000
		To Bad Debt A/c				8,000
	(Amount of bad debt transferred to Provision for Doubtful Debt Account)
	Profit and Loss A/c		Dr.		7,840
		To Provision for Doubtful Debt A/c				7,840
	(Amount of Provision for Doubtful Debt transferred to Profit and Loss Account)

Bad Debt Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2010				2010
Dec.31	Balance b/d		6,000	Dec.31	Provision for Doubtful
Dec.31	Debtors		2,000		Debt		8,000
			8,000				8,000

Debtors Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2010				2010
Dec.31	Balance b/d		50,000	Dec.31	Bad Debt		2,000
				Dec.31	Balance c/d		48,000
			50,000				50,000

Provision for Doubtful Debts Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2010				2010
31 Dec.	Bad Debt (6,000 + 2,000)		8,000	Jan.01	Balance b/d		4,000
31 Dec.	Balance c/d		3,840	Dec.31	Profit and Loss		7,840
			11,840				11,840

 

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Q22 :The following information is extracted from the Trial Balance of M/s Nisha Traders on 31 December 2005.
Sundry Debtors 80,500
Bad Debts 1,000
Provision for Bad Debts 5,000
Additional Information
Bad Debts Rs 500
Provision is to be maintained at 2% of Debtors
Prepare bad debts account, Provision for bad debts account and profit and loss account.
Answer:

Bad Debt Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2010				2010
Dec.31	Balance b/d		1,000	Dec.31	Provision for Bad Debts		1,500
Dec.31	Debtors		500
			1,500				1,500

Provision for Bad debt Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2010				2010
Dec.31	Bad Debt		1,500	Dec.31	Balance b/d		5,000
Dec.31	Profit and Loss		1,900
Dec.31	Balance c/d		1,600
			5,000				5,000

Profit and Loss Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
				2010
				Dec.31	Provision for Bad Debts		1,900

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