Question
Define depreciation. State any two reasons for providing depreciation.
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Answer
In every business there are certain assets of a fixed nature that are needed for the conduct of business operations. Some examples of such assets are Building, Plant and Machinery, Motor Vehicles, Furniture, Office equipments etc. These assets have a definite span of life after the expiry of which the assets will lose their usefulness for the business operations. Fall in the value and utility of such assets due to their constant use and expiry of tine is termed as depreciation. In other words, the process of allocation of the cost of a fixed asset over its useful life is known as depreciation.
The causes (reasons) of Depreciation are:
The causes (reasons) of Depreciation are:
- Use of Asset: Use of asset leads to its wear and tear and thus fall in its value.
- Obsolescence: If a better and cost effective machine becomes available, old machine may have to be discarded even though it is capable of being used. Thus, it leads to reduction of useful life of the asset.
- Accidents: Accidental loss may be permanent but is not continuing and gradual.
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On 30th June, 2014 the Pass Book of Sh. Mahabir Prashad showed a balance of ₹ 22,000. On comparing the Pass Book with Cash Book the following differences were found:-
- Mahabir Prashad had paid into the Bank on 26th June four cheques for ₹ 3,000; ₹ 6,000; ₹ 8,000 and ₹ 10,000. Of these, the cheque for ₹ 6,000 was credited by the bank in July 2014.
- On 23rd June three cheques were drawn for ₹ 12,000; ₹ 13,000 and ₹ 16,000. The first two cheques were presented to the bank for payment in June and the third in July 2014.
- Cheques amounting to ₹ 3,600 were deposited in the bank but no entry was passed in the Cash Book.
- Bank charges entered in Cash Book twice ₹ 50.
- Cheque received entered twice in the Cash Book ₹ 3,200.
Rectify the following errors assuming that there is no Suspense Account:
- Salary of ₹ 5,000 paid to Rahul was not posted to Salaries Account.
- Sales to Amrish of ₹ 1,430 posted to his account as ₹ 1,340.
- Sales to Vijay of ₹ 2,470 posted to his account as ₹ 2,740.
- Purchases from Pal of ₹ 1,430 posted to his account as ₹ 1,340.
Complete the following Rectification Entries:
On 31st March, 2023, Bank Statement of Gopal shows credit balance of ₹ 33,570
whereas Cash Book showed debit balance of ₹ 53,000.
It was observed that the differences were because of the following:
i. Cheques and drafts sent to the bank but not collected and credited, amounted to ₹ 7,900 while cheque for ₹ 2,000 was received unpaid.
ii. Three cheques drawn for ₹ 3,000; ₹ 1,500 and ₹ 2,000 respectively were not presented for payment till 30th April, 2023.
iii. Bank has paid a cheque of ₹ 10,000 but it has not been entered in the Cash Book and a cheque of ₹ 5,000 which was discounted with the bank was dishonoured by the drawee on the due date.
iv. Bank has charged ₹ 130 as its commission for collecting outstation cheques and had credited an interest of ₹ 100 in the account.
v. A wrong debit of ₹ 5,000 was made by the bank, which was reversed on 4th April, 2023. Prepare Bank Reconciliation Statement as on 31st March, 2023.
whereas Cash Book showed debit balance of ₹ 53,000.
It was observed that the differences were because of the following:
i. Cheques and drafts sent to the bank but not collected and credited, amounted to ₹ 7,900 while cheque for ₹ 2,000 was received unpaid.
ii. Three cheques drawn for ₹ 3,000; ₹ 1,500 and ₹ 2,000 respectively were not presented for payment till 30th April, 2023.
iii. Bank has paid a cheque of ₹ 10,000 but it has not been entered in the Cash Book and a cheque of ₹ 5,000 which was discounted with the bank was dishonoured by the drawee on the due date.
iv. Bank has charged ₹ 130 as its commission for collecting outstation cheques and had credited an interest of ₹ 100 in the account.
v. A wrong debit of ₹ 5,000 was made by the bank, which was reversed on 4th April, 2023. Prepare Bank Reconciliation Statement as on 31st March, 2023.
Define a Trial Balance. Why is it prepared?
Record the following transactions in the Sales Book of Ganesh & Co. of Jaipur (Rajasthan), who deal in Furniture. Assume CGST @ 6% and SGST @ 6%.
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2017
|
|
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June 4
|
Sold to Gupta Furniture House, Agra (U.P.)
|
| 120 Chairs @ ₹ 2,500 per Chair | |
| 25 Tables @ ₹ 8,000 per Table | |
| Less: 5% | |
|
June 8
|
Sold to Raja Furniture House, Ahmedabad (Gujarat)
|
| 8 Almirahs @ ₹ 15,000 each | |
| 9 Steel Cabinets @ ₹ 20,000 each | |
| Less: Trade discount of 10% | |
|
June 12
|
Sold old Computer for ₹ 1,500 to Mohan & Co. on Credit.
|
|
June 20
|
Sold 4 Sofa sets @ ₹ 25,000 each to Varun & Co. for cash
|
|
June 25
|
Sold to New Furniture House, Jaipur
|
| 5 Sofa sets @ ₹ 20,000 each | |
| 10 Tables @ ₹ 8,000 each | |
|
June 28
|
Purchased from Ram Lal & Co. Jaipur on credit
|
| 50 chairs @ ₹ 2,000 each |
Jouranlise the following transactions in the books of Harpreet Bros:
- ₹ 1,000 due from Rohit are now bad debts.
- Goods worth ₹ 2,000 were used by the proprietor.
- Charge depreciation @ 10% p.a for two month on machine costing ₹ 30,000.
- Provide interest on capital of ₹ 1,50,000 at 6% p.a. for 9 months.
- Rahul become insolvent, who owed is ₹ 2,000 a final dividend of 60 paise in a rupee is received from his estate.
Name the various books of original entries.
Rim Zim Ltd. maintains a current account with the State Bank of India. On 31st March, 2017, the bank column of its cash book showed a debit balance of ₹ 1,54,300. However, the bank statement showed a different balance as on that date. The following were the reasons for the difference:
Find out the balance as per the bank statement as on 31st March, 2017.
|
(i)
|
Cheques deposited, but not yet credited by the bank
|
75,450
|
|
(ii)
|
Cheques issued, but not yet presented for payment
|
80,760
|
|
(iii)
|
Bank charges not yet recorded in the cash book
|
1,135
|
|
(iv)
|
Cheques received by the bank directly from trade debtors
|
1,35,200
|
|
(v)
|
Insurance premium paid by the bank as per standing instructions, but not yet recorded in the cash book
|
15,400
|
|
(vi)
|
Dividend collected by the bank, but not yet recorded in the cash book
|
1,000
|
Are debits or credits listed first in journal entries? Are debits or credits indented?