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

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

    AdminBy AdminUpdated:August 11, 202357 Mins Read
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    Short answers : Solutions of Questions on Page Number : 272


    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:


    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.


    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.


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

    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:


    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.


    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.


    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.


    Q8 :Distinguish between provision and reserve.
    Answer :

    Basis of Difference

    Provision

    Reserve

    Meaning

    It is created to meet the known liability.

    It is created to meet unknown liability.

    Nature

    Provision is charged against profit.

    Reserve is appropriation of the profit.

    Purpose

    It is created for a specific liability.

    It is created for strengthening the financial position.

    Mode of creation

    It is created by debiting the profit and loss account.

    It is created by debiting the profit and loss
    appropriation account.

    Use for payment of dividend

    It cannot be used for payment of dividends.

    It can be used for payment of dividends.

    Creation

    Creation of provision is compulsory. It is created even
    if there is no profit.

    Creation of reserve depends on the discretion of the
    management. It is created only when there is profit.


    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


    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.


    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


    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.


    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.


    Long answers : Solutions of Questions on Page Number : 273


    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 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.


    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.


    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)

    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:


    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.


    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)

    Numerical questions : Solutions of Questions on Page Number : 273


    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


    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


    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.


    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

     


    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

     


    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

     


    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


    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


    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 31st March, 2005 is Rs 91,917; however, as per the book it is Rs 80,583.


    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

     


    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


    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


    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.


    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

     


    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


    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

     


    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


    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.


    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

    1/4th 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.


    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

     


    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

     


    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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    Financial Accounting Part-1

    • Chapter 1 - Introduction to Accounting
    • Chapter 2 - Theory Base of Accounting
    • Chapter 3 - Recording of Transactions - I
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    • Chapter 6 - Trial Balance and Rectification of Errors
    • Chapter 7 - Depreciation, Provisions and Reserves
    • Chapter 8 - Bills of Exchange

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    • Chapter 1 - Financial Statements - I
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    • Chapter 3 - Accounts from Incomplete Records
    • Chapter 4 - Accounting for Not-for-Profit Organisation
    • Chapter 5 - Applications of Computers in Accounting
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