# DEPRECIATION

I        Straight line method / Fixed installment Method / Original Cost Method / Equal Installments Method.

Q.1    Ankit limited purchases a machine for ` 5, 00,000. Its estimated life is 5 Years after which it has no scrap value. Calculate depreciation to be charged each year as per straight line Method. Also calculate depreciation on % age basis.

Q.2    Sulekha limited purchases a machinery for ` 10, 00,000 import duty paid ` 3,00,000 installation charges ` 1,00,000. Its estimated life is 6 years after which its salvage value will be ` 80,000. Calculate depreciation to be charged each year as per straight line method.

PQ.1  Calculate depreciation to be charged each year as per straight line method for each of the following cases:

 M/C I M/C II M/C III Purchase Price 5,50,000 3,90,000 2,00,000 Import Duty 2,00,000 – 5,00,000 Fright 1,00,000 50,000 2,00,000 Installation Charges 1,50,000 60,000 2,00,000 Residential Value 1,00,000 1,00,000 – Life 5 Years 8 Years 20 Years

Also calculate rate of depreciation in each of the above case.

Q.3.   On 1st April’2011, a company purchased a Furniture for ` 40,000 with residential value of ` 10,000 after 3 years. On 31st March’2014, the furniture was sold for ` 10,000. Prepare Furniture Account till 31st March’2014.
If depreciation charged as per straight line method.

Q.3    (a)      If on 31st March’2014, the furniture is sold for ` 8,000 or

` 13,000, show low it will be reflected in the furniture account.

(b)      Prepare furniture account till 3 Years of its life it furniture is    purchases on 1st Oct. ’2011.

Q.4    on 1st July 2011, a company purchases a plant costing ` 70,000 with estimated life of 6 Years and salvage value of ` 10,000. On 1st Sep’2012 it purchased another plant for ` 1, 20,000 with estimated life of 5 Years and scrap value of ` 20,000. Prepare plant A/c till 31st Mar’2014.

1. Modern limited purchases machinery for ` 2,50,000 on 1st Aug’2010. Another machine was purchases on 1st July’2011 for ` 3,00,000. Depreciation is provided @ 20% p.a. as per straight line method. Prepare machinery A/c till 31st Dec’2013 on the assumption that company follows calendar year as its accounting yea.

Q.5.   On 1st Jan’2010, a limited purchases machinery for ` 2,00,000 and spent
` 40,000 on installation. On 1st Jul’2011 another machine was purchases for
` 3,00,000. On 1st Jul’2012 the machine purchase on 1st Jan’2010 was sold for ` 1, 90,000 and on the same date another machine was purchased for ` 4, 00,000. Show the machinery Account for the accounting Years 2010-11, 2011-12 and 2012-13. After charging depreciation @ 10% as per straight line method.

PQ.3  A B & W purchases machinery on 1st Apr’2010 for ` 6,00,000. On 1st Dec’2011, it purchased another machine for ` 3,00,000.

On 30th Jun’2012, the first machine purchased on 1st Apr’2010 was sold for
` 3,60,000 and on the same date it purchased a new machinery for ` 8,00,000 on 1st Dec’2013, the second machine was also sold for ` 2,60,000 depreciation is provided on machinery @ 10% p.a. On fixed installment method. The company followers financial year as its accounting yea` Prepare machinery account till 31st Mar’2014.

Q.6.   On 1st Apr’2010, a plant was purchased for ` 12,00,000 on 1st Oct’2010 another plant was purchased for ` 5,00,000 and on 1st Jul’2011 additional plant was purchased for ` 2,50,000.

On 1st Jan’2013 a machinery of the original value of ` 2,00,000 on
1st Apr’2010 was sold for ` 60,000. Prepare plant account for three years after providing depreciation @ 20% p.a. on the original cost method. Books are closed on 31st March every year.

PQ.4  From the following transactions at a concern, prepare machinery account for the year ending 31st Mar’2014.

 April 2013 Purchased a used machinery for ` 2,00,000 April 2013 Spent ` 50,000 on repairs to make it serviceable. Sept 30 Purchased another machinery for ` 2,00,000 Nov 1 Repairs and renewals of machinery ` 40,000 31 Mar’2014 Depreciate the machinery @ 15% p.a. on straight line method

Q.7.   On 1st Oct’2010, A B & Associates purchased for ` 12,00,000. New machinery was purchased on 1st Jul’2011 for ` 5,00,000. On 1st Jan’2013, a machinery of the original value of ` 2,00,000 included in the machinery purchased on
1st Oct’2010 was sold for ` 60,000. Prepare machinery account till accounting year 2013-14 assuming equal installment method is followed and the rate of depreciation is 15 p.a.

PQ.4  On 1st Apr’2010 a company purchased plant and machinery for ` 20,00,000. New machinery for ` 1,00,000 on 1st Oct’2011. On 1St Jul’2012 a machinery whose book value was ` 3,00,000 on 1st April’2010 was sold for ` 1,60,000. The company charges depreciation @ 10% p.a. on fixed installment method. Show the plant and machinery account till 31st Mar’2013.

Q.8.   A company whose accounting year is the calendar year, purchased on
1st Apr’2010, a machinery costing ` 3,00,000. It purchased another machine for ` 2,00,000 on 1st Oct’2010. Additions were also made on 1st July’2011 amounting ` 1,00,000.

On 1st Jan’2012, one-third of the machinery that was installed on 1st Apr’2010 become obsolete and sold for ` 20,000 show machinery account till
31st Dec’2013 assuming depreciation is charges @ 15% p.a. on straight line method.

PQ.5  If in the above question the company follows financial year on its accounting year and rate of depreciation is 10% p.a prepare machinery account till 31st Mar’ 2014.

Q.9    On 1st Jun’2010, X & W purchased a machinery costing `6,00,000. Additions were made on 1st Oct’2011 to the extent of ` 10,000,000. On 31st Jul’2013 of the machine purchased on 1st Oct’2011 was sold for ` 3,25,000. Depreciation is charged @ 20% p.a. on original cost. Prepare machinery account for 4 year till 31st Dec’2013. Assuming books are closed on the basis of calendar year.

PQ.6  On 1st July, 2011, a Co. Ltd. Purchases second-hand machinery for `20,000 and spends `3,000 on reconditioning and installing it. On 1st January, 2006, the firm purchases new machinery worth `12,000. On 30th June, 2013, the machinery purchased on 1st January, 2012, was sold for `80,000 and on 1st July, 2007, a fresh plant was installed. Payment for this plan was to be made as follows :

1st July, 2013             ` 5,000

30th June, 2013           ` 6,000

30th June, 2014           ` 5,500

Payments on 2013 and 2014 include interest of ` 1,000 and ` 500 respectively.

The company writes off 10% p.a. on the original cost. The accounts are closed every year on 31st March. Show the Machinery Account for the year ended 31st March, 2008.

II       Written Down Value Method / Fixed Percentage on Diminishing Balance / Reducing Installment Method.

Q.1    A firm purchased a used truck for ` 18,00,000 and spend ` 2,00,000 for its repairs on 1st Jan’2013. It charged depreciation @ 20% p.a. on reducing balance method. The truck was sold on 1st Jul’2014 for ` 16,00,000. Prepare truck account for 2013 and 2014 on the assumption that books are closed on 31st December every year.

Q.2    Rohan purchased on 1st Jan’2010, a machine four ` 60,000. On
1st Jul’2010 he purchased another machine for ` 50,000. On 1st Jul’2012, he sold the machine purchased on 1st Jul’2010 for ` 30, 000.

Depreciation is provided @! 10% p.a. under diminishing balance method and books are closed on 31st March every year. Show machinery account till
31st Mar’2014.

Q.3    A company purchased a machinery for ` 5,00,000 on 1st Jul’2011. Another machinery was purchased on 1st Sep’2011 for ` 1,00,000 on 31st Dec’2013, the machinery purchased on 1st Jul’2011 was sold at a loss of ` 60,000. The company charged depreciation @ 15% p.a. on diminishing balance method. Prepare machinery account till 31st Mar’52014 assuming books are closed on 31st March every year.

PQ.1  Sunil purchased a machinery for ` 3,00,000 on 1st Oct’2010. Another machinery was purchased on 1st Jul’2011 for ` 2,00,000. On 30th Jun’2013 the machinery purchased on 1st Jul’2011 was sold at a profit of ` 35,000 and another machinery was purchased on the same date for ` 6,00,000. Depreciation is charged @ 20% p.a. on written down value method. Prepare machinery Account till 31st Mar’2014.

Q.4    A B & Co. purchased a machinery for ` 4,00,000 on 1st Jul’2010. Depreciation is provided @ 10% p.a. on the reducing installment basis on 31st Oct’2012, one-fourth of the machinery was found unsuitable and disposed off for ` 56,000. On the same date new machinery at a cost of ` 1,50,000 was purchased. Write up the machinery account till 31st Dec’2013 (Books are maintained as per calendar year).

Q.5    Dot & Co. purchased 5 truck @ ` 20,00,000 each on 1st Oct’2010 on
1st Jul’2012, one of the trucks was involved in on accident and is completely destroyed ` 5,25,000 was received from the insurance company in the full settlement on the same date another truck was purchased by the company for the sum of ` 23,50,000. Depreciation is provided @ 20% p.a. on the diminishing balance method. The books are closed on 31st December each year prepare machinery account till 31st Dec’2013.

Q.6    A company, which closes its books on 31st March every year, purchased on
1st July, 2010 machinery costing ` 3,00,000. It purchased further machinery on 1st January, 2011, costing ` 2,00,000 and on 1st October 2011, costing ` 10,000. On 1st April, 2012, one-third of the machinery installed on 1st July, 2011, became obsolete and was sold for ` 3,00,000.

Show how the machinery account would appear in the books of the company, it being given that machinery was depreciated by Diminishing Balance Method at 10% per annum. What would be the balance of Machinery Account on 1st April, 2013.

PQ.2  Raja Textiles Co. which closes its books on 31st March, purchased a machine on 1-4-2009 for ` 50,000. On 1-10-2010, it purchased an additional machine for
` 30,000. The part of the machine which was purchased on 1-4-2009 costing
` 10,000 was sold for ` 3,600 on 30th Sept., 2012. Prepare the machine account for the years, if the depreciation is provided at the rate of 10% p.a. on Diminishing balance Method.

System 2 :   Provision for Depreciation

Q.1    A joint stock company had bought machinery for ` 10,000 including a boiler worth `10,000. This Machinery Account was for the first four years credited for Depreciation on the educing Instalment System at the rate of 10% p.a. During the fifth year, i.e., the current year, the boiler becomes useless on account of damage to its parts. The damaged boiler is sold for ` 2,000 which amount is credited to the Machinery Account.

Prepare the Machinery Account for the current year, adjusting therein the cash received and the loss suffered on the damaged boiler and the Depreciation of the Machinery for the current year.

Q.2    A company had bought machinery for ` 2,00,000 including a boiler with
` 20,000. The Machinery Account had been credited for Depreciation on the Reducing Instalment System for the past four years at the rate of 10%. During the fifth year, i.e., the present year, the boiler became useless on account of damage to some of its vital parts and the damaged boiler is sold for ` 4,000. Write up the Machinery Account.

PQ.3  A company purchased a machinery for ` 80,000 on 1st April, 2010 and decided to write off at 10% annually on the Diminishing Balance Method. On 1st July, 2012 a part of the machinery valued in the books of the firm at ` 16,000 on 1st April, 2010 was sold for ` 10,000.

Show the Machinery Account in the books of the company for the years 2010, 2011 and 2012. Accounts are closed each year on 31st December.

Provision for Depreciation Account

Q.1    On July 1, 2005 X & Co. purchased a machinery ` 28,50,000 and paid
` 1,50,000 for its overhauling and installation. Depreciation is provided @ 20% p.a. on Original Cost Method and the books are closed on 31st March every year. The machine was sold on 31st January 2008 for a sum of
` 8,00,000. You are required to show the Machinery Account and Provision for Depreciation Account for threeyears.

Q.2    A machine was purchased on 1st October 1998 at a cost of ` 3,00,000 and ` 20,000 were spent on its installation. The depreciation is written off at 10% p.a. on the Diminishing Value Method. The books are closed on 31st March every year. The machine was sold for ` 1,30,000 on 1st July 2001. Show the Machinery Account and Provision and Depreciation Account for the years.

Q.3    On 1st April 208, a Company purchased 6 machines for ` 2,50,000 each. Depreciation  at the rate of 10% p.a. is charged on Straight Line Method. The accounting year of the Company ends on 31st March and the depreciation is credited to a separate ‘Provision for Depreciation Account’.

On 1st October, 2010, one machine was sold for ` 30,000 and on 1st April, 2011 a second machine was sold for ` 24,000

You are required to prepare Machinery Account and Provision for Depreciation Account for four years ending 31st March, 2012.

PQ.1  On 1st July 2006, X Ltd. Purchases 4 machines for ` 4,00,000 each. The accounting year of the company ends on 31st March every year. Depreciation  is provided at the rate of 15% p.a. on original cost.

On 1st April, 2012 one machine was sold for ` 2,50,000 and on 1st January, 2010 a second machine was sold for ` 2,00,000. Another machine with a higher capacity which cost ` 2,00,000 was purchased on 1st January, 2014.

You are required to show : (i) Machinery Account, (ii) Depreciation Account, and (iii) provision for Depreciation Account for four years ending 31st March, 2014.

Q.4    A Ltd. which closes its books of account every year on 31st March, purchased on 1st October, 2011 machinery costing ` 4,40,000. It purchased further machinery on 1st April, 1999 costing ` 5,20,000. On 30th June, 2000, the first machine was sold for ` 2,50,000 and on the same date a fresh machine was installed at a cost of ` 3,00,000. On 1st July 2001, the second machine purchased on 1st April 1999 was also sold for ` 3,25,000.

The company writes off depreciation at 10% p.a. on the Straight Line Method each year. Show the Machinery A/c, Depreciation A/c and Provision for Depreciation A/c for all the four years.

Q.5.   B. Ltd. Purchased a plant on 1st July, 2011 costing ` 10,00,000. It purchased another plant on 1st September, 2011 costing ` 6,00,000. On 31st December, 2013, the plant purchased on 1st July, 2011 got out of order and was sold for
` 4,30,000. Another plant was purchased to replace the same for ` 12,00,000. Depreciation is to be provided at 20% p.a. according to Written Down Value Method. The accounts are closed every year on 31st March.

Show the Plant Account and Provision for Depreciation Account.

PQ.2  On 1st April 2011, S. Ltd. Purchased a machinery for ` 20,00,000. It provides depreciation at 10% p.a. on the Written Down Value Method and closes its books on 31st March every year. On 1st July 2013 July, a part of the machinery purchased on 1st April 2011 for ` 34,00,000 was sold for
` 3,20,000. On 1st November 2013, a new machinery was purchased for
` 4,80,000. You are required to prepare Machinery Account, Depreciation Account and Provision for Depreciation Account for three years ending 31st March 2014.

PQ.3  Z Ltd. Which depreciates its machinery at 20% p.a. on diminishing balance method, purchased a machine for ` 15,00,000 on 1st October, 2010. It closes its books on 31st March every year. On 1st January, 2012, it purchased another machine for ` 3,75,000. On 1st December, 2012, one-third of the machinery purchased on 1st October, 2010 was sold for ` 2,00,000.

You are required to prepare Machinery A/c Provision for Depreciation A/c for the relevant years.

Q.6.   The following balances appear in the books of M/s Solanki :

`

1st April, 2013   Machinery A/c                                   6,00,000

1st April, 2013   Provision for depreciation A/c             3,60,000

On 1st April, 2013, they decided to dispose off a machinery for ` 84,000 which was purchased on  1st April, 2004 for ` 1,60,000.

PQ.4  Following balances appear in the books of AB & Co. as on          `

1st April, 2013       Machinery Account                                            80,000

Provision for Depreciation A/c                                       36,000

On 1st April, 2013, they decide to sell a machine for ` 5,00,000. This machine was purchased for ` 7,50,000 on 1st April 2009. Prepare the Machinery Account and Provision for Depreciation Account for the year 2013-14 assuming that the firm has been charging Depreciation at 10% p.a. on the Straight Line Method.

Asset Disposal Account

Q.1    On 1st January, 2011 X. Ltd. Purchased from Y Ltd. A plant costing ` 4,00,000 on instalment basis payable as follows :

On 1st January, 2011                     ` 1,00,000

On 1st July, 2011                           ` 1,00,000

On 1st January, 2012                     ` 1,00,000

On 1st January, 2013                     ` 1,00,000

The company spent ` 1,00,000 on transportation and installation of the plant. It was decided to provide Depreciation on the Straight Line Method. Useful life of the plant was estimated at 5 years. It was also estimated that the end of the useful life, realizable value of the plant would be ` 12,000 (gross) and dismantling cost of plant, to be paid by company was estimated at ` 2,000. The plant was destroyed by fire on 31st December, 2014 and an insurance claim of
` 50,000 was admitted by the insurance company. Prepare the Plant Account, Accumulated Depreciation Account and Plant Disposal Account assuming that the company closes its books on 31st December every year.

Q.2    You are given following balances as on 1st April, 2013 :

MachineA/c                                   ` 10,00,000

Provision for Depreciation A/c        ` 2,32,000

Depreciation is charged on machinery at 20% p.a. by the Diminishing Balance Method. A piece of machinery purchased on 1st April, 2011 for ` 1,00,000 was sold on 1st October, 2013 for ` 60,000. Prepare the Machinery Account and Provision for Depreciation Account for the year ended 31st March, 2014. Also, prepare the Machinery Disposal Account.

PQ.1  X. Ltd. Imported a machine on 1st July, 2005 for ` 2,00,000, paid custom duty and freight ` 60,000 and incurred erection charges ` 40,000. Another local machinery costing ` 1,00,000 was purchased on 1st January, 2006. On 1st July, 2007, one-third of the imported machine got out of order and was sold for
` 40,000. Another machinery was purchased to replace the same for ` 50,000 on the same date. Depreciation is to be calculated at 20% p.a. on the Straight Line Method. Accounts are closed each year on 31st December.

Show the Machinery Account and Provision for Depreciation Account for 2005, 2006 and 2007 and Machinery Disposal Account.

Some Other Practice Questions :

Q.1    Original cost of a Machinery ` 26,00,000; Salvage Value ` 1,00,000. What will be the amount of depreciation for second year according to diminishing balance method @ 10% p.a.

Q.2    A machine was purchased on 1st April, 2011. The balance of this machine on 31st March, 2014 is ` 58,32,000. Depreciation is charged @ 10% p.a. on written down value method. What was the cost price of the machine on 1st April, 2011?

Q.3    Ram purchased computer on 1-4-2013 for ` 60,000. They are charging depreciation on written down value method. On 31-3-2014 they sold the computer for ` 1,65,000 and incurred a loss of ` 75,000. What was the rate of depreciation p.a.?

Q.4    The Sameer Transport Company purchased 10 Trucks at ` 90,000 each on 1st April 1995. On 1st October 1997 one of the Trucks was involved in an accident and is completely destroyed. ` 56,200 was received from the Insurance company in full settlement. On the same date another truck was purchased by the company for the sum of ` 1,00,000. The Company writes off 20% per annum on the Diminishing Balance Method. The company maintains the calendar year as its financial year. Show the Truck Account for four years ending 31st December, 1998.