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Depreciation, Provisions and Reserves — Account STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceAccountDepreciation, Provisions and Reserves6 Marks
Question
Reliance Ltd. Purchased a second hand machine for ₹ 56,000 on October 01, 2011 and spent ₹ 28,000 on its overhaul and installation before putting it to operation. It is expected that the machine can be sold for ₹ 6,000 at the end of its useful life of 15 years. Moreover an estimated cost of ₹ 1,000 is expected to be incurred to recover the salvage value of ₹ 6,000. Prepare machine account and Provision for depreciation account for the first three years charging depreciation by fixed installment Method. Accounts are closed on March 31, every year.
✓

Answer



Working Note:
Calculation of annual depreciation.
$\text{Depreciation (p.a.)}=\frac{(56,000+28,000-6,000+1,000)}{15 \ \text{years}}$
$=₹5,267\ \text{per annum}$
Note: As per the solution, the balance of provision for depreciation account, as on March.31, 2015 is ₹ 11,850; whereas, as per the book, it is ₹ 18,200. However, if we ignore the scrap value and prepare provision for depreciation for 4 years, the answer would match to that of the book.

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