Depreciation, Provisions and Reserves – Numerical Problems Solutions

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Depreciation, Provisions and Reserves – Numerical Problems Solutions
1. On April 01, 2010, Bajrang Marbles purchased a Machine for ₹ 2,80,000 and spent ₹ 10,000 on its carriage and ₹ 10,000 on its installation. It is estimated that its working life is 10 years and after 10 years its scrap value will be ₹ 20,000.

  1. 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.
  2. 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 31st every year.

Working Notes:
Cost of Asset
= 2,80,000 + 10,000 + 10,000
= 3,00,000
We have,

Yearly Depreciation =
Cost of asset – Estimated Residential value
Estimated useful life of the asset
=
3,00,000 – 20,000
10
=
2,80,000
10
=
28,000

When charging depreciation to Machine Account:

Creating Provision for Depreciation / Accumulated Depreciation Account:



2. On July 01, 2010, Ashok Ltd. purchased a machine for ₹ 1,08,000 and spent ₹ 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 ₹ 12,000.
Prapare 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.
Cost of machine =
1,08,000 + 12,000
=
1,20,000
We have,

Yearly Depreciation =
Cost of asset – Estimated Residential value
Estimated useful life of the asset
=
1,20,000 – 12,000
12
=
1,08,000
12
=
9,000

3. Reliance Ltd. purchased a second hand machine for ₹ 56,000 on October 01, 2011 and spent ₹ 28,000 on its overhaul and installation before putting it to operation. It is expected that the machine can be sold for ₹ 6,000 at the end of its useful life of 15 years. Moreover an estimated cost of ₹ 1,000 is expected to be incurred to recover the salvage value of ₹ 6,000. Prepare machine account and Provision for depreciation account for the first three years charging depreciation by fixed installment method. Accounts are closed on December 31, every year.

Net Residual value =
Sale value – Expenses incurred for the disposal of the asset
=
6,000 – 1,000
=

5,000

Cost of asset =
56,000 + 28,000
=
84,000
Yearly Depreciation =
Cost of asset – Estimated Residential Value
Estimated useful life of the asset
=
84,000 – 5,000
15
=
79,000
15
=
5,267
4. Berlia Ltd. Purchased a second hand machine for ₹ 56,000 on July 01, 2011 and spent ₹ 24,000 on its repair and installation and ₹ 5,000 for its carriage. On September 01, 2012, it purchased another machine for ₹ 2,50,000 and spent ₹ 10,000 on its installation.

  1. Depreciation is provided on machinery @ 10% p.a on original cost method annually on December 31. Prepare machinery account and depreciation account from year 2011 to 2014.
  2. Prepare machinery account and depreciation account from the year 2011 to 2014, if depreciation is provided on machinery @10% p.a. on written down value method annually on December 31.
Working Notes:
Cost of machine 1 =
56,000 + 24,000 + 5,000
=
85,000
Cost of machine 2 =
2,50,000 + 10,000
=
2,60,000
Depreciation Chart
Year
Machine
Duration
Calculation
Depreciation
2011
Machine 1
6 months
85,000×
10
100
×
6
12
4,250
Total
4,250
2012
Machine 1
12 months
85,000 ×
10
100
8,500
Machine 2
4 months
2,60,000×
10
100
×
4
12
8,667
Total
17,167
2013
Machine 1
12 months
10
100
×85,000
8,500
Machine 2
12 months
10
100
×2,60,000
26,000
Total
34,500
2014
Machine 1
12 months
10
100
×85,000
8,500
Machine 2
12 months
10
100
×2,60,000
26,000
Total
34,500
Working Notes for Written Down Value Method
Year
Machine
Book Value
Duration
Calculation
Depreciation
2011
Machine 1
85,000
6 months
85,000×
10
100
×
6
12
4,250
Total
4,250
2012
Machine 1
85,000 – 4,250
=80,750
12 months
80,750 ×
10
100
8,075
Machine 2
2,60,000
4 months
2,60,000×
10
100
×
4
12
8,667
Total
16,742
2013
Machine 1
72,675
12 months
72,675×
10
100
7,268
Machine 2
2,51,333
12 months
2,51,333×
10
100
25,133
Total
32,401
2014
Machine1
65,407
12 months
65,407×
10
100
6,541
Machine 2
2,26,200
12 months
10
100
×2,60,000
22,620
Total
29,261
5. Ganga Ltd. Purchased a second hand machine on January 01, 2011 for ₹ 5,50,000 and spent ₹ 50,000 on its installation. On September 01, 2011 it purchased another machine for ₹ 3,70,000. On May 01, 2012 it purchased another machine for ₹ 8,40,000 (including installation expenses).
Depreciation was provided on machiner @10% p.a. on original cost method annually on December 31. Prepare:

  1. Machinery account and depreciation account for the years 2011, 2012, 2013 and 2014.
  2. If depreciation is accumulated in provision for Depreciation account then prepare machine account and provision for depreciation account for the years 2011, 2012, 2013 and 2014.

Working Notes:
Cost of machine 1 =
56,000 + 24,000 + 5,000
=
85,000
Cost of machine 2 =
2,50,000 + 10,000
=
2,60,000
Depreciation Chart
Year
Machine
Duration
Calculation
Depreciation
2011
Machine 1
6 months
85,000×
10
100
×
6
12
4,250
Total
4,250
2012
Machine 1
12 months
85,000 ×
10
100
8,500
Machine 2
4 months
2,60,000×
10
100
×
4
12
8,667
Total
17,167
2013
Machine 1
12 months
10
100
×85,000
8,500
Machine 2
12 months
10
100
×2,60,000
26,000
Total
34,500
2014
Machine 1
12 months
10
100
×85,000
8,500
Machine 2
12 months
10
100
×2,60,000
26,000
Total
34,500
When provision for depreciation account is maintained separately.
6. Azad Ltd. purchased furniture on October 01, 2012 for ₹ 4,50,000. On March 01, 2013 it purchased another furniture for ₹ 3,00,000. On July 01, 2014 it sold off the first furniture purchased in 2012 for ₹ 2,25,000. Depreciation is provided at 15% p.a. on writtten 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, 2013, March 31, 2014 and March 31, 2015. Also give the above two accounts if furniture disposal account is opened.
Working Notes for Written Down Value Method
Accounting
Period
Furniture
Book Value
Duration
Calculation
Depreciation
2012 – 2013
Furniture 1
4,50,000
6 months
4,50,000×
15
100
×
6
12
33,750
Furnitue 2
3,00,000
1 month
3,00,000×
15
100
×
1
12
3,750
Total
37,500
2013 – 2014
Furniture 1
4,50,000 – 33,750
= 4,16,250
12 months
4,16,250 ×
15
100
62,438
Furniture 2
3,00,000 – 3,750
= 2,96,250
12 months
2,96,250×
15
100
44,438
Total
1,06,876
2013 – 2014
Furniture 1
4,16,250 – 62,438
= 3,53,812
3 months
3,53,812×
15
100
×
3
12
13,268
Furnitue 2
2,96,250 – 44,438
= 2,51,812
12 months
2,51,812×
15
100
37,772
Total
51,040
Description
Amount
₹
Book Value of furniture 1 as of Jul 01, 2014
3,53,812 – 13,268
3,40,544
Sale Price of Furniture 1
2,25,000
Loss on sale of furniture 1
1,15,544

7. M/s Lokesh Fabrics purchased a Textile Machine on April 01, 2011 for ₹ 1,00,000. On July 01, 2012 another machine costing ₹ 2,50,000 was purchased. The machine purchased on April 01, 2011 was sold for ₹ 25,000 on October 01, 2015. The company charges depreciation @15% p.a. on straight line method. Prepare machinery account and machinery disposal account for the year ended March 31, 2016.
Working Notes:
Depreciation Chart
Year
Machine
Duration
Calculation
Depreciation
2011 – 2012
Machine 1
12 months
1,00,000×
15
100
15,000
Total
15,000
2012 – 2013
Machine 1
12 months
1,00,000 ×
15
100
15,000
Machine 2
4 months
2,50,000×
15
100
×
9
12
28,125
Total
43,125
2013 – 2014
Machine 1
12 months
1,00,000×
15
100
15,000
Machine 2
12 months
2,50,000×
15
100
37,500
Total
52,500
2014 – 2015
Machine 1
12 months
1,00,000×
15
100
15,000
Machine 2
12 months
2,50,000×
15
100
37,500
Total
52,500
2015 – 2016
Machine 1
6 months
1,00,000×
15
100
×
6
12
7,500
Machine 2
12 months
2,50,000×
15
100
37,500
Total
45,000
Description
Amount
₹
Book Value of machine 1 as of Oct 01, 2015
=Original Cost – Accumulated Depreciation
=1,00,000 – (15,000 + 15,000 + 15,000 + 15,000 + 7,500)
32,500
Sale Price of machine 1
25,000
Loss on sale of machine 1
7,500
8. The following balances appear in the books of Crystal Ltd. on Jan 01, 2015

  1. Machinery account on ₹ 15,00,000
  2. Provision for depreciation account ₹ 5,50,000

On April 01, 2015 a machinery which was purchased on January 01, 2012 for ₹ 2,00,000 was sold for ₹ 75,000. A new machine was purchased on July 01, 2015 for ₹ 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, 2015.

Working Notes:
Depreciation Chart
Year
Machine
Duration
Calculation
Depreciation
2015
Machine 1
3 months
2,00,000×
20
100
×
3
12
10,000
Retained Machinery 1
Book Value = 15,00,000 – 2,00,000
=13,00,000
12 months
13,00,000×
20
100
2,60,000
Machine 2
6 months
6,00,000×
20
100
×
6
12
60,000
Description
Amount
₹
Original Cost of sold out machinery 1 as of Apr 01, 2015
2,00,000
Accumulated Depreciation
= Depreciation in 2012 + Depreciation in 2013 + Depreciation in 2014 + Depreciation in 2015
= 40,000 + 40,000 + 40,000 + 10,000
= 1,30,000
1,30,000
Book Value as of Apr 01, 2015
= Original Cost – Accumulated Depreciation
= 2,00,000 – 1,30,000
= 70,000
70,000
Sale Price of machine 1
75,000
Gain on sale of machine 1
5,000
9. M/s. Excel Computers has a debit balance of ₹ 50,000 (original cost ₹ 1,20,000) in computers account on April 01, 2010. On July 01, 2010 it purchased another computer costing ₹ 2,50,000. One more computer was purchased on January 01, 2011 for ₹ 30,000. On April 01, 2014 the computer which was purchased on July 01, 2010 became obsolete and was sold for ₹ 20,000. A new version of the IBM computer was purchased on August 01, 2014 for ₹ 80,000. Show computers account in the books of Excel Computers for the years ended on March 31, 2011, 2012, 2013, 2014 and 2015. The computer is depreciated @10 p.a. on straight line basis.
Working Notes:
Depreciation Chart
Year
Machine
Duration
Calculation
Depreciation
2010 – 2011
Old Computers
12 months
1,20,000×
10
100
12,000
New Computer 1
9 months
2,50,000×
10
100
×
9
12
18,750
New Computer 2
3 months
30,000×
10
100
×
3
12
18,750
Total
31,500
2011 – 2012
Old Computers
12 months
1,20,000×
10
100
12,000
New Computer 1
12 months
2,50,000×
10
100
25,000
New Computer 2
12 months
30,000×
10
100
3,000
Total
40,000
2012 – 2013
Old Computers
12 months
1,20,000×
10
100
12,000
New Computer 1
12 months
2,50,000×
10
100
25,000
New Computer 2
12 months
30,000×
10
100
3,000
Total
40,000
2013 – 2014
Old Computers
12 months
1,20,000×
10
100
12,000
New Computer 1
12 months
2,50,000×
10
100
25,000
New Computer 2
12 months
30,000×
10
100
3,000
Total
40,000
2014 – 2015
Old Computers
Book Value = Scrap Value
= 50,000 – (12,000 + 12,000 + 12,000 + 12,000)
= 50,000 – 48,000
= 2,000
12 months
2,000
2,000
New Computer 1
12 months
2,50,000×
10
100
25,000
New Computer 2
8 months
30,000×
10
100
30,000×
8
12
5,333
Total
40,000
Description
Amount
₹
Original Cost of sold out new computer 1 as of Apr 01, 2014
2,50,000
Accumulated Depreciation
= Depreciation in 2010 – 2011 + Depreciation in 2011 – 2012 + Depreciation in 2012 – 2013 + Depreciation in 2013 – 2014
= 18,750 + 25,000 + 25,000 + 25,000
= 93,750
93,750
Book Value as of Apr 01, 2014
= Original Cost – Accumulated Depreciation
= 2,50,000 – 93,750
= 1,56,250
1,56,250
Sale Price of new computer 1
20,000
Loss on sale of new computer 1
1,36,250
10. Carriage Transport Company purchased 5 trucks at the cost of ₹ 2,00,000 each on April 01, 2011. The company writes off depreciation @20% p.a. on original cost and closes its books on December 31, every year. On October 01, 2013, one of the trucks is involved in an accident and is completely destroyed. Insurance company agreed to pay ₹ 70,000 in full settlement of the claim. On the same date the company purchased a second hand truck for ₹ 1,00,000 and spent ₹ 20,000 on its overhauling. Prepare truck account and provision for depreciation account for the three years ended on December 31, 2013. Also give truck account if truck disposal account is prepared.

Working Notes:
Depreciation Chart
Year
Truck
Duration
Calculation
Depreciation
2011
Old 5 trucks
9 months
5 × 2,00,000×
20
100
×
9
12
1,50,000
Total
1,50,000
2012
Old 5 trucks
12 months
5 × 2,00,000×
20
100
2,00,000
Total
2,00,000
2013
Disposed Old Truck
9 months
2,00,000×
20
100
×
9
12
30,000
Remaining Old 4 trucks
12 months
4 × 2,00,000×
20
100
1,60,000
New Truck
3 months
1,20,000×
20
100
×
3
12
6,000
Total
1,96,000
11. Saraswati Ltd. purchased a machinery costing ₹ 10,00,000 on January 01, 2011. A new machinery was purchased on 01 May, 2012 for ₹ 15,00,000 and another on July 01, 2014 for ₹ 12,00,000. A part of the machinery which originally cost ₹ 2,00,000 in 2011 was sold for ₹ 75,000 on October 31, 2014. Show the machinery account, provision for depreciation account and machinery disposal account from 2011 to 2015 if depreciation is provided at 10% p.a. on original cost and accounts are closed on December 31, every year.
Working Notes:
Depreciation Chart
Year
Truck
Duration
Calculation
Depreciation
2011
Machine 1
12 months
10,00,000×
10
100
1,00,000
Total
1,00,000
2012
Machine 1
12 months
10,00,000×
10
100
1,00,000
Machine 2
8 months
15,00,000×
10
100
×
8
12
1,00,000
Total
2,00,000
2013
Machine 1
12 months
10,00,000×
10
100
1,00,000
Machine 2
12 months
15,00,000×
10
100
1,50,000
Total
2,50,000
2014
Machine 1 sold out part
Orignal Cost = 2,00,000
10 months
2,00,000×
10
100
×
10
12
16,667
Machine 1 Retained part
Original cost
= 10,00,000 – 2,00,000
= 8,00,000
12 months
8,00,000×
10
100
80,000
Machine 2
12 months
15,00,000×
10
100
1,50,000
Machine 3
6 months
12,00,000×
10
100
×
6
12
60,000
Total
3,06,667
2015
Machine 1
12 months
8,00,000×
10
100
80,000
Machine 2
12 months
15,00,000×
10
100
1,50,000
Machine 3
12 months
12,00,000×
10
100
1,20,000
Total
3,50,000
Machine Disposal Calculation:
Description
Amount
₹
Original Cost of sold out machine part
2,00,000
Accumulated Depreciation
= Depreciation in 2011 + Depreciation in 2012 + Depreciation in 2013 + Depreciation in 2014
= 20,000 + 20,000 + 20,000 + 16,667
= 76,667
76,667
Book Value as of Oct 01, 2014
= Original Cost – Accumulated Depreciation
= 2,00,000 – 76,667
= 1,23,333
1,23,333
Sale Price of machine 1 part
75,000
Loss on sale of new computer 1
= Book Value – Sale Price
48,333
12. On July 01, 2011 Ashwani purchased a machine for ₹ 2,00,000 on credit. Installation expenses ₹ 25,000 are paid by cheque. The estimated life is 5 years and its scrap value after 5 years will be ₹ 20,000. Depreciation is to be charged on straight line basis. Show the journal entry for the year 2011 and prepare necessary ledger accounts for the first three years.

Working Notes:
Cost of Asset
= 2,00,000 + 25,000
= 2,25,000
We have,

Yearly Depreciation =
Cost of asset – Estimated Residential value
Estimated useful life of the asset
=
2,25,000 – 20,000
5
=
2,05,000
5
=
41,000
Books of Ashwani
Journal
Date
Particulars
L.F.
Dr
₹
Cr
₹
2011
Jul 01
Machinery A/c
Dr
2,25,000
To Credit Seller A/c
2,00,000
To Bank A/c
25,000
(Being Machine purchased on credit for ₹ 2,00,000 and installation expenses of ₹ 25,000 paid by cheque)
Dec 31
Depreciation A/c
Dr
20,500
To Machine A/c
20,500
(Being depreciation charged on machine for 6 months)
Dec 31
Profit & Loss A/c
Dr
20,500
To Depreciation A/c
20,500
(Being depreciation moved to Profit & Loss account)
2012
Dec 31
Depreciation A/c
Dr
41,000
To Machine A/c
41,000
(Being depreciation charged on machine for current year)
Dec 31
Profit & Loss A/c
Dr
41,000
To Depreciation A/c
41,000
(Being depreciation moved to Profit & Loss account)
2013
Dec 31
Depreciation A/c
Dr
41,000
To Machine A/c
41,000
(Being depreciation charged on machine for current year)
2013
Dec 31
Profit & Loss A/c
Dr
41,000
To Depreciation A/c
41,000
(Being depreciation moved to Profit & Loss account)
On October 01, 2010, a Truck was purchased for ₹ 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, 2013 this Truck was sold for ₹ 5,00,000. Accounts are closed on 31st March every year. Prepare a Truck Account for the four years.
Working Notes:
Depreciation Chart
Year
Book Value
Duration
Calculation
Depreciation
2010 – 2011
8,00,000
6 months
8,00,000×
15
100
×
6
12
60,000
2011 – 2012
= 8,00,000 – 60,000
= 7,40,000
12 months
7,40,000×
15
100
1,11,000
2012 – 2013
= 7,40,000 – 1,11,000
= 6,29,000
12 months
6,29,000×
15
100
94,350
2013 – 2014
= 6,29,000 – 94,350
= 5,34,650
9 months
5,34,650×
15
100
×
9
12
60,148
Machine Disposal Calculation:
Description
Amount
₹
Book Value as on Dec 31, 2013
= Book Value as on Apr 01, 2013 – Depreciation till Dec 31, 2013
= 5,34,650 – 60,148
= 4,74,502
4,74,502
Sale Price of truck
5,00,000
Profit on sale of truck
= Sale Price – Book Value
= 5,00,000 – 4,74,502
25,498
14. Kapil Ltd. purchased a machinery on July 01, 2011 for ₹ 3,50,000. It purchased two additional machines, on April 01, 2012 costing ₹ 1,50,000 and on October 01, 2012 costing ₹ 1,00,000. Depreciation is provided @10% pa.a. on straight line basis. On January 01, 2013, first machinery become useless due to technical changes. This machinery was sold for ₹ 1,00,000. Prepare machinery account for 4 years on the basis of calendar year.
Working Notes:
Depreciation Chart
Year
Machine
Duration
Calculation
Depreciation
2011
Machine 1
6 months
3,50,000×
10
100
×
6
12
17,500
Total
17,500
2012
Machine 1
12 months
3,50,000×
10
100
35,000
Machine 2
9 months
1,50,000×
10
100
×
9
12
11,250
Machine 3
3 months
1,00,000×
10
100
×
3
12
2,500
Total
48,750
2013
Machine 2
12 months
1,50,000×
10
100
15,000
Machine 3
12 months
1,00,000×
10
100
10,000
Total
25,000
2014
Machine 2
12 months
1,50,000×
10
100
15,000
Machine 3
12 months
1,00,000×
10
100
10,000
Total
25,000
Machine Disposal Calculation:
Description
Amount
₹
Original cost of Machine 1
3,50,000
Accumulated Depreciation
= Depreciation in 2011 + Depreciation in 2012
= 17,500 + 35,000
= 52,500
52,500
Book Value as on Jan 01, 2013
= Original Cost – Depreciation till Dec 31, 2012
= 3,50,000 – 52,500
= 2,97,500
2,97,500
Sale Price of Machine 1
1,00,000
Loss on sale of truck
= Book Value – Sale Price
= 2,97,500 – 1,00,000
1,97,500
15. On January 01, 2011, Satkar Transport Ltd., purchased 3 buses for ₹ 10,00,000 each. On July 01, 2013, one bus was involved in an accident and was completely destroyed and ₹ 7,00,000 were received from the Insurance Company in full settlement. Depreciation is written off @15% p.a. on diminishing balance method. Prepare bus account from 2011 to 2014. Books are closed on December 31 every year.
Working Notes:
Depreciation Chart
Year
Bus
Book Value
Duration
Calculation
Depreciation
2011
Bus 1
10,00,000
12 months
10,00,000×
15
100
1,50,000
Other 2 Buses
= 2 × 10,00,000
= 20,00,000
12 months
20,00,000×
15
100
3,00,000
Total
17,500
2012
Bus 1
= 10,00,000 – 1,50,000
= 8,50,000
12 months
8,50,000×
15
100
1,27,500
Other 2 Buses
= 20,00,000 – 3,00,000
= 17,00,000
12 months
17,00,000×
15
100
2,55,000
Total
3,82,500
2013
Bus 1
= 8,50,000 – 1,27,500
= 7,22,500
6 months
7,22,500 ×
15
100
×
6
12
54,188
Other 2 Buses
= 17,00,000 – 2,55,000
= 14,45,000
12 months
14,45,000×
15
100
2,16,750
Total
2,70,938
2014
Other 2 Buses
= 14,45,000 – 2,16,750
= 12,28,250
12 months
12,28,250×
15
100
1,84,238
Total
1,84,238
Bus Disposal Calculation:
Description
Amount
₹
Original cost of Bus 1
10,00,000
Accumulated Depreciation
= Depreciation in 2011 + Depreciation in 2012 + Depreciation in 2013
= 1,50,000 + 1,27,500 + 54,188
= 3,31,688
3,31,688
Book Value as on Jul 01, 2013
= Original Cost – Depreciation till Jul 01, 2013
= 10,00,000 – 3,31,688
= 6,68,312
6,68,312
Insurance claimed on bus 1
7,00,000
Profit due to insurance claim
= Insurance Claim – Book Value
= 7,00,000 – 6,68,312
31,688
16. On October 01, 2011 Juneja Transport Company purchased 2 Trucks for ₹ 10,00,000 each. On July 01, 2013, One Truck was involved in an accident and was completely destroyed and ₹ 6,00,00 were received from the insurance company in full settlement. On December 31, 2013, another truck was involved in an accident and destroyed partially, which was not insured. It was sold off for ₹ 1,50,000. On January 31, 2014, company purchased a fresh truck for ₹ 12,00,000. Depreciation is to be provided at 10% p.a. on written down value every year. The books are closed every year on March 31. Give the truck account from 2011 to 2014.

Working Notes:
Depreciation Chart
Year
Truck
Book Value
Duration
Calculation
Depreciation
2011 – 2012
Truck 1
10,00,000
6 months
10,00,000×
10
100
×
6
12
50,000
Truck 2
10,00,000
6 months
10,00,000×
10
100
×
6
12
50,000
Total
1,00,000
2012 – 2013
Truck 1
= 10,00,000 – 50,000
= 9,50,000
12 months
9,50,000×
10
100
95,000
Truck 2
= 10,00,000 – 50,000
= 9,50,000
12 months
9,50,000×
10
100
95,000
Total
1,90,000
2013 – 2014
Truck 1
= 9,50,000 – 95,000
= 8,55,000
3 months
8,55,000×
10
100
×
3
12
21,375
Truck 2
= 9,50,000 – 95,000
= 8,55,000
9 months
8,55,000×
10
100
×
3
12
64,125
Truck 3
12,00,000
2 months
12,00,000×
10
100
×
2
12
20,000
Total
1,05,500
Truck 1 Disposal Calculation:
Description
Amount
₹
Original cost of Truck 1
10,00,000
Accumulated Depreciation
= Depreciation in 2011 – 2012 + Depreciation in 2012 – 2013 + Depreciation in 2013 – 2014
= 50,000 + 95,000 + 21,375
= 1,66,375
1,66,375
Book Value as on Jul 01, 2013
= Original Cost – Depreciation till Jul 01, 2013
= 10,00,000 – 1,66,375
= 8,33,625
8,33,625
Insurance claimed on truck 1
6,00,000
Loss on truck 1
= Book Value of Truck 1 – Insurance Claim
= 8,33,625 – 6,00,000
2,33,625
Truck 2 Disposal Calculation:
Description
Amount
₹
Original cost of Truck 2
10,00,000
Accumulated Depreciation
= Depreciation in 2011 – 2012 + Depreciation in 2012 – 2013 + Depreciation in 2013 – 2014
= 50,000 + 95,000 + 64,125
= 2,09,125
2,09,125
Book Value as on Dec 31, 2013
= Original Cost – Depreciation till Jul 01, 2013
= 10,00,000 – 2,09,125
= 7,90,875
7,90,875
Sale Price of truck 2
1,50,000
Loss on truck 2
= Book Value of Truck 2 – Sale Price
= 7,90,875 – 1,50,000
6,40,875
17. A Noida based construction company owns 5 cranes and the value of this asset in its books on April 01, 2011 is ₹ 40,00,000. On October 01, 2011 it sold one of its cranes whose value was ₹ 5,00,000 on April 01, 2011 at a 10% profit. On the same day it purchased 2 cranes for ₹ 4,50,000 each. Prepare cranes account. It closes the books on December 31 and provides for depreciation on 10% written down value.
Working Notes:
Depreciation Chart
Year
Crane
Book Value
Duration
Calculation
Depreciation
2011 – 2012
Sold out old Crane 1
5,00,000
6 months
5,00,000×
10
100
×
6
12
25,000
Other 4 old cranes
= 40,00,000 – 5,00,000
= 35,00,000
9 months
35,00,000×
10
100
×
9
12
2,62,500
4 new cranes
= 2 × 4,50,000
= 9,00,000
3 months
9,00,000×
10
100
×
9
12
22,500
Total
3,10,000
Crane 1 Disposal Calculation:
Description
Amount
₹
Original cost of Crane 1
5,00,000
Accumulated Depreciation
= Depreciation in 2011 – 2012
= 25,000
25,000
Book Value as on Oct 01, 2011
= Original Cost – Depreciation till Oct 01, 2011
= 5,00,000 – 25,000
= 4,75,000
4,75,000
Selling Price
= Book Value + 10% of Book Value
= 4,75,000 + 10% of 4,75,000
= 4,75,000 + 47,500
= 5,22,500
5,22,500
Profit on crane 1
= Sale Price – Book Value
= 5,22,500 – 4,75,000
= 47,500
Alternatively, Profit = 10% of Book Value
= 10% of 4,75,000
= 47,500
47,500
18. Shri Krishnan Manufacturing Company purchased 10 machines for ₹ 75,000 each on July 01, 2010. On October 01, 2012, one of the machines got destroyed by fire and an insurance claim of ₹ 45,000 was admitted by the company. On the same date another machine is purchased by the company for ₹ 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 2010 to 2013.
Working Notes:
Depreciation Chart
Year
Machine
Book Value
Duration
Calculation
Depreciation
2010
sold out machine 1
75,000
6 months
75,000×
15
100
×
6
12
5,625
Other 9 old machines
= 9 × 75,000
= 6,75,000
6 months
6,75,000×
10
100
×
6
12
50,625
Total
56,250
2011
sold out machine 1
= 75,000 – 5,625
= 69,375
12 months
69,375×
15
100
10,406
Other 9 old machines
= 6,75,000 – 50,625
= 6,24,375
12 months
6,24,375×
15
100
93,656
Total
1,04,062
2012
sold out machine 1
= 69,375 – 10,406
= 58,969
9 months
58,969×
15
100
×
9
12
6,634
Other 9 old machines
= 6,24,375 – 93,656
= 5,30,719
12 months
5,30,719×
15
100
79,608
2 new machines
1,25,000
3 months
1,25,000×
15
100
×
3
12
4,688
Total
90,930
2013
Other 9 old machines
= 5,30,719 – 79,608
= 4,51,111
12 months
5,30,719×
15
100
67,667
2 new machines
= 1,25,000 – 4,688
1,20,312
12 months
1,20,312 ×
15
100
18,047
Total
85,714
Machine 1 Disposal Calculation:
Description
Amount
₹
Original cost of Machine 1
75,000
Accumulated Depreciation
= Depreciation in 2010 + Depreciation in 2011 + Depreciation in 2012
= 5,625 + 10,406 + 6,634
= 22,665
22,665
Book Value as on Oct 01, 2012
= Original Cost – Depreciation till Oct 01, 2012
= 75,000 – 22,665
= 52,335
52,335
Insurance Claim
45,000
Loss on machine 1
= Book Value – Insurance Claim
= 52,335 – 45,000
= 7,335
7,335
19. On January 01, 2010, a Limited Company purchased machinery for ₹ 20,00,000. Depreciation is provided @15 p.a. on diminishing balance method. On March 01, 2012, one fourth of machinery was damaged by fire and ₹ 40,000 were received from the insurance company in full settlement. On September 01, 2012 another machinery was purchased by the company for ₹ 15,00,000.
Write up the machinery account from 2012 to 2013. Books are closed on December 31, every year.
Working Notes:
Depreciation Chart
Year
Machine
Book Value
Duration
Calculation
Depreciation
2010
¼ of machinery 1
= ¼ × 20,00,000
= 5,00,000
12 months
5,00,000 ×
15
100
75,000
Rest ¾ of machinery 1
= ¾ × 20,00,000
= 15,00,000
12 months
15,00,000×
10
100
2,25,000
Total
3,00,000
2011
¼ of machinery 1
= 5,00,000 – 75,000
= 4,25,000
12 months
4,25,000×
15
100
63,750
¾ of machinery 1
= 15,00,000 – 2,25,000
= 12,75,000
12 months
12,75,000 ×
15
100
1,91,250
Total
2,55,000
2012
¼ of machinery 1
= 4,25,000 – 63,750
= 3,61,250
2 months
3,61,250×
15
100
×
2
12
9,031
¾ of machinery 1
= 12,75,000 – 1,91,250
= 10,83,750
12 months
10,83,750×
15
100
1,62,563
new machine
15,00,000
4 months
15,00,000×
15
100
×
4
12
75,000
Total
2,46,594
2013
¾ of machine 1
= 10,83,750 – 1,62,563
= 9,21,187
12 months
9,21,187 ×
15
100
1,38,179
new machine
= 15,00,000 – 75,000
= 14,25,000
12 months
14,25,000 ×
15
100
2,13,750
Total
3,51,929
¼ of Machine 1 Disposal Calculation:
Description
Amount
₹
Original cost of ¼ of Machine 1
5,00,000
Accumulated Depreciation
= Depreciation in 2010 + Depreciation in 2011 + Depreciation in 2012
= 75,000 + 63,750 + 9,031
= 1,47,781
1,47,781
Book Value as on Mar 01, 2012
= Original Cost – Depreciation till Oct 01, 2012
= 5,00,000 – 1,47,781
= 3,52,219
3,52,219
Insurance Claim
40,000
Loss on ¼ of machine 1
= Book Value – Insurance Claim
= 3,52,219 – 40,000
= 3,12,219
3,12,219
20. A Plant was purchased on 1st July, 2010 at a cost of ₹ 3,00,000 and ₹ 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 ₹ 1,50,000 on October 01, 2012 and on the same date a new Plant was installed at the cost of ₹ 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.
Working Notes:
Depreciation Chart
Year
Plant
Book Value
Duration
Calculation
Depreciation
2010
Plant 1
= 3,00,000 + 50,000
= 3,50,000
6 months
3,50,000 ×
15
100
×
6
12
26,250
Total
26,250
2011
Plant 1
3,50,000
12 months
3,50,000 ×
15
100
52,500
Total
52,500
2012
Plant 1
3,50,000
9 months
3,50,000×
15
100
×
9
12
39,375
New Plant
4,00,000
3 months
4,00,000 ×
15
100
×
3
12
15,000
Total
54,375
Plant 1 Disposal Calculation:
Description
Amount
₹
Original cost of ¼ of Machine 1
5,00,000
Accumulated Depreciation
= Depreciation in 2010 + Depreciation in 2011 + Depreciation in 2012
= 26,250 + 52,500 + 39,375
= 1,18,125
1,18,125
Book Value as on Oct 01, 2012
= Original Cost – Depreciation till Oct 01, 2012
= 3,50,000 – 1,18,125
= 2,31,875
2,31,875
Selling Price
1,50,000
Loss on plant 1
= Book Value – Selling Price
= 2,31,875 – 1,50,000
= 81,875
81,875
21. An extract of Trial balance from the books of Tahiliani and Sons Enterprises on March 31, 2015 is given below:
Name of the Account
Debit Amount
₹
Credit Amount
₹
Sundry debtors
50,000
Bad Debts
6,000
Provision for doubtful debts
4,000
Additional Information:
  1. Bad Debts proved bad but not recorded amounted to ₹ 2,000
  2. 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.
Books of Tahiliani and Sons Enterprises
Journal
Date
Particulars
L.F.
Dr
₹
Cr
₹
i.
Bad Debts A/c
Dr
2,000
To Debtors A/c
2,000
(Being Further Bad Debts)
ii.
Provision for doubtful debts A/c
Dr
8,000
To Bad Debts A/c
8,000
(Being all the bad debts transferred to Provision for Doubtful Debts account)
iii.
Profit & Loss A/c
Dr
7,840
To Provision for Doubtful Debts A/c
7,840
(Being amount charged from Profit & Loss account)
Profit & Loss Account
*Only relevant items are shown
₹
₹
Provision for doubtful debts:
Bad Debts
6,000
Further Bad Debts
2,000
New Provision
3,840
11,840
Less Old Provision
  4,000
7,840
22. The following information is extracted from the Trial Balance of M/s Nisha Traders on 31 March 2015.



Sundry Debtors
80,500
Bad Debts
1,000
Provision for bad debts
5,000
Additional Information:
  1. Bad Debts ₹ 500
  2. Provision is to be maintained at 2 % of Debtors
Prepare Bad Debts account, Provision for Bad Debts account and Profit & Loss account
Profit & Loss Account
*Only relevant items are shown
₹
₹
Provision for doubtful debts:
Old Provision
5,000
Less Bad Debts
1,000
Less Further Bad Debts
500
Less New Provision
1,600
1,900