Download App

Account 6 Marks Question

Depreciation · CBSE STD 11 Commerce (CBSE - English Medium). 32 questions.

Questions

6 Marks Question

🎯

Test yourself on this topic

32 questions · timed · auto-graded

Question 16 Marks
On 1st October, 2011, X Ltd. purchased a machinery for ₹ 2,50,000. A part of machinery which was purchased for ₹ 20,000 on 1st October, 2011 became obsolete and was disposed off on 1st January, 2014 (having a book value ₹ 17,100 on 1st April, 2013) for ₹ 2,000. Depreciation is charged @ 10% annually on written down value. Prepare Machinery Disposal Account and also show your workings. The books being closed on 31st March of every year.
View full question & answer→
Question 26 Marks
A company purchased a machinery for ₹ 50,000 on 1st October, 2016. Another machinery costing ₹ 10,000 was purchased on 1st December, 2017. On 31st March, 2019, the machinery purchased in 2016 was sold at a loss of ₹ 5,000. The company charges depreciation @ 15% p.a. on Diminishing Balance Method. Accounts are closed on 31st March every year. Prepare the Machinery Account for 3 years.
Answer

Working Note:
Calculation of profit or loss on sale of machine:
View full question & answer→
Question 36 Marks
On 1st April, 2015, furniture costing ₹ 55,000 was purchased. It is estimated that its life is 10 years at the end of which it will be sold for ₹ 5,000. Additions are made on 1st April 2016 and 1st October, 2018 to the value of ₹ 9,500 and ₹ 8,400 (Residual values ₹ 500 and ₹ 400 respectively). Show the Furniture Account for the first four years, if Depreciation is written off according to the Straight Line Method.
Answer

Depreciation on F1 $=\frac{55,000-5,000\text{(Scrap Value)}}{10\text{ years}}$
$=₹\ 5,000\text{ p.a}$
Depreciation on F2 $=\frac{9,500-500\text{(Scrap Value)}}{10\text{ years}}$
$=₹\ 900\text{ p.a}$
Depreciation on F3 $=\frac{8,400-400\text{(Scrap Value)}}{10\text{ years}}$
$=₹\ 800\text{ p.a}$
$\therefore$ Depreciation on F3 (for six months) $=800\times\frac{6}{12}$
$=₹\ 400$
View full question & answer→
Question 46 Marks
From the following transactions of a concern, prepare the Machinery Account for the year ended 31st March, 2019:
1st April, 2018
:
Purchased a second-hand machinery for ₹ 40,000.
1st April, 2018
:
Spent ₹ 10,000 on repairs for making it serviceable.
30th September, 2018
:
Purchased additional new machinery for ₹ 20,000.
31st December, 2018
:
Repairs and renewal of machinery ₹ 3,000.
31st March, 2019
:
Depreciate the machinery at 10% p.a.
View full question & answer→
Question 56 Marks
Modern Ltd. purchased a machinery on 1st August, 2016 for ₹ 60,000. On 1st October, 2017, it purchased another machine for ₹ 20,000 plus CGST and SGST @ 6% each. On 30th June, 2018, it sold the first machine purchased in 2016 for ₹ 38,500 charging IGST @ 12%. Depreciation is provided @ 20% p.a. on the original cost each year. Accounts are closed on 31st March every year. Prepare the Machinery Account for three years.
Answer

Working Notes:
  1. Calculation of Annual Depreciation:
Machine 1 $=60,000\times\frac{20}{100}$

$=₹\ 1,200$

Machine 2 $=20,000\times\frac{20}{100}$

$=₹\ 4,000$

  1. Journal entries for purchase and sale with GST:
View full question & answer→
Question 66 Marks
On 1st April, 2015, A Ltd. purchased a machine for ₹ 2,40,000 and spent ₹ 10,000 on its erection. On 1st October, 2015 an additional machinery costing ₹ 1,00,000 was purchased. On 1st October, 2017, the machine purchased on 1st April, 2015 was sold for ₹ 1,43,000 and on the same date, a new machine was purchased at cost of ₹ 2,00,000.
Show the Machinery Account for the first four financial years after charging Depreciation at 5% p.a. by the Straight Line Method.
Answer
Working Notes:
  1. Calculation of Deprecation:
Machine 1 $=2,50,000\times\frac{5}{100}$
$=₹\ 12,500\text{ p.a.}$
Machine 2 $=1,00,000\times\frac{5}{100}$
$=₹\ 5,000\text{ p.a.}$
Machine 3 $=2,00,000\times\frac{4}{100}$
$=₹\ 10,000\text{ p.a.}$
  1. Calculation of profit or loss on sale of Machine 1:
View full question & answer→
Question 76 Marks
X bought a machine for ₹ 25,000 on which he spent ₹ 5,000 for carriage and freight. ₹ 1,000 for brokerage of the middleman, ₹ 3,500 for installation and ₹ 500 for an iron pad. The machine is depreciated @ 10% p.a. on Written Down Value basis. After three years, the machine was sold to Y for ₹ 30,500 and ₹ 500 was paid as commission to the broker through whom the sale was effected. Find out the profit and loss on sale of machine.
View full question & answer→
Question 86 Marks
Good Manufacturers Ltd. purchased on 1st October, 2016 a machinery costing ₹ 25,000. A sum of ₹ 1,000 was spent upon its installation. Depreciation is charged @ 10% p.a. on the Diminishing Balance Method. The company closes its books every year on 31st March (Ignore GST). What will be the amount of Depreciation for the year ended 31st March 2017, 31st March 2018 and 31st March, 2019?
Answer
Depreciation for the year ended 31st March 2017 $=\text{(Purchase value + installation charges)}\times\frac{\text{Rate of Intrest}}{100}\times\frac{\text{month of uses}}{12}$
$=(25,000+1,000)\times\frac{10}{100}\times\frac{6}{12}$
$=26,000\times\frac{10}{100}\times\frac{6}{12}$
$=1,300$
Depreciation for the year ended 31st March 2018 $=\text{(Value of machine at beginning)}\times\frac{\text{Rate of Intrest}}{100}\times\frac{\text{month of uses}}{12}$
$=24,700\times\frac{10}{100}\times\frac{12}{12}$
$=2,470$
Depreciation for the year ended 31st March 2019 $=\text{(Value of machine at beginning)}\times\frac{\text{Rate of Intrest}}{100}\times\frac{\text{month of uses}}{12}$
$=22,230\times\frac{10}{100}\times\frac{12}{12}$
$=2,223$
View full question & answer→
Question 96 Marks
Following balances appear in the books of Priyank Brothers:
 
 
₹
1st April, 2017
Machinery A/c
20,00,000
 
Provision for Depreciation A/c
8,00,000
On 1st April, 2017, they decide to sell a machine for ₹ 5,00,000. This machine was purchased for ₹ 7,50,000 on 1st April, 2014. Prepare the Machinery Account and Provision for Depreciation Account for the year ended 31st March, 2018 assuming that the firm has been charging Depreciation @ 10% p.a. on the Straight Line Method.
Answer


Working Notes:
  1. Calculation of Loss on Sale of Machinery:
View full question & answer→
Question 106 Marks
​​On 1st April, 2016, X Ltd. purchased a machine costing ₹ 4,00,000 and spent ₹ 50,000 on its installation. The estimated life of the machinery is 10 years, after which its residual value will be ₹ 50,000 only. Find the amount of annual depreciation according to the Fixed Instalment Method and prepare Machinery Account for the first three years. The books are closed on 31st March every year.
Answer
Calculation of Depreciation: Depreciation p.a. $=\frac{4,00,000+50,000−50,000(\text{ScrapValue})}{10 \text{ years}}$ $=₹\ 40,00\text{ p.a.}$
View full question & answer→
Question 116 Marks
Following balances appear in the books of Rama Bros:
 
 
₹
1st April, 2016
Machinery A/c
80,000
 
Provision for Depreciation A/c
36,000
On 1st April, 2016, they decided to sell a machine for ₹ 8,700. This machine was purchased for ₹ 16,000 in April, 2012. Prepare the Provision for Depreciation Account and Machinery Account on 31st March, 2017, assuming the firm has been charging Depreciation at 10% p.a. on Straight Line Method.
Answer


Working Notes:
  1. Calculation of Book Value of Machine Sold on April 01, 2015:
  1. Calculation of profit or loss on Sale of Machine:
View full question & answer→
Question 126 Marks
On 1st April, 2016, Shivam Enterprise purchased a second-hand machinery for ₹ 52,000 and spent ₹ 2,000 on cartage, ₹ 3,000 on unloading, ₹ 2,000 on installation and ₹ 1,000 as brokerage of the middle man. It was estimated that the machinery will have a scrap value of ₹ 6,000 at the end of its useful life, which is 10 years. On 31st December 2016, repairs and renewals amounted to ₹ 2,500 were paid. On 1st October, 2018, this machine was sold for ₹ 30,600 and an amount of ₹ 600 was paid as commission to an agent. Calculate the amount of annual depreciation and rate of depreciation. Also prepare the Machinery Account for first 3 years, assuming that firm follows financial year for accounting.
Answer
Amount of Depreciation $=\frac{\text{Cost of Machine - Scrap Value of Machine }}{\text{Life in Years}}$ $=\frac{60,000\text{(Note)} - 6,000}{10}=₹\ 5,400$ Rate of Depreciation $=\frac{\text{Amount of Depreciation}}{\text{Cost of Machine}}\times100$ $=\frac{5,400}{60,000}\times100=9\%\text{ p.a}.$ Working Notes: Calculation of Profit or Loss on Sale:
View full question & answer→
Question 136 Marks
Babu purchased on 1st April, 2017, a machine for ₹ 6,000. On 1st October, 2017, he also purchased another machine for ₹ 5,000. On 1st October, 2018, he sold the machine purchased on 1st April, 2017 for ₹ 4,000.
It was decided that Depreciation @ 10% p.a. was to be written off every year under Diminishing Balance Method.
Assuming the accounts were closed on 31st March every year, show the Machinery Account for the years ended 31st March, 2018 and 2019.
Answer
Working Note: Calculation of profit or loss on sale of machine:
View full question & answer→
Question 146 Marks
State briefly the necessity of providing Depreciation.
Answer
Depreciation is provided with the following objectives:
  1. To Determine Correct Profit or Loss: Depreciation is an expense of the business and, therefore, is a charge against revenue. If it is not accounted as an expense, Profit and Loss Account for the accounting period would not give a true and fair view of the profitability of the business (i.e., net profit/ net loss).
  2. To show True and Fair View of the Financial Position: Depreciation, if not charged, would result in assets being stated at a higher value. As a result of this the Position Statement (Balance Sheet) would not present a true and fair view of the financial position.
  3. To determine the Cost of Production: Depreciation is taken into consideration for calculating the cost of production. If it is not taken into account, cost of the production will be lower by the amount of depreciation.
  4. To provide funds for replacement: Depreciation is a non-cash expense and when charged the amount of depreciation is retained in the business and can be used for the replacement of fixed assets after the expiry of their estimated useful life.
  5. To comply with legal provisions: It is necessary to charge depreciation to comply with the provisions of the Companies Act and the Income Tax Act.
View full question & answer→
Question 156 Marks
On 1st October, 2015, Meenal Sharma bought a machine for ₹ 25,000 on which he spent ₹ 5,000 for carriage and freight; ₹ 1,000 for brokerage of the middle-man, ₹ 4,000 for installation. The machine is depreciated @ 10% p.a. on written down value basis. On 31st March, 2018 the machine was sold to Deepa for ₹ 30,500 and ₹ 500 was paid as commission to broker through whom the sales was effected. Find out the profit or loss on sale of machine if accounts are closed on 31st March, every year.
Answer

Working Note:
Calculation of Profit or Loss on sale of Machine I:
View full question & answer→
Question 166 Marks
A company whose accounting year is a financial year, purchased on 1st July, 2015 machinery costing ₹ 30,000.
It purchased further machinery on 1st January, 2016 costing ₹ 20,000 and on 1st October, 2016 costing ₹ 10,000.
On 1st April, 2017, one-third of the machinery installed on 1st July, 2015 became obsolete and was sold for ₹ 3,000.
Show how Machinery Account would appear in the books of the company. It being given that machinery was depreciated by Fixed Instalment Method at 10% p.a. What would be the value of Machinery Account on 1st April, 2018?
Answer

Working Notes:
  1. Calculation of Depreciation:
Machine I $=30,000\times\frac{10}{100}$

$=₹\ 3,000\text{ p.a.}$

And Depreciation of $\frac{2}{3}^\text{rd}$ portion $=3,000\times\frac{2}{3}$

$=₹\ 2,000$

Machine II $=20,000\times\frac{10}{100}$

$=₹\ 2,000\text{ p.a.}$

Machine III $=10,000\times\frac{10}{100}$

$=₹\ 1,000\text{ p.a.}$
  1. Calculation of profit or loss on sale of $\frac{1}{3}^\text{rd}$ Portion of Machine I:
View full question & answer→
Question 176 Marks
On $1st$ April, $2015,$ Star Ltd. purchased $5$ machines for $₹\ 60,000$ each. On $1st$ April, $2017,$ one of the machine was sold at a loss of $₹\ 8,000$. On $1st $July, $2018,$ second machine was sold at a loss of $₹\ 12,500.$ A new machine was purchased for $₹\ 1,00,000$ on $1st$ October, $2018.$
Prepare Machinery Account for $4$ years, assuming accounts are closed on $31st$ March each year and depreciation is charged @ $10\%$ per annum as per Straight Line Method.
Answer

Working Notes:
  1. Calculation of Sale proceeds from Machinery sold on $1^{st}$ April, $2017:$
Book Value of the Machine as on $1^{st}$ April, 2017 $=\frac{\text{Total opening balance of Machinery on this date}}{5}$
$=\frac{₹\ 2,40,000}{5}=₹\ 48,000$
Loss on Sale of Machinery $= ₹\ 8,000$
Sale proceeds from the Machinery = Book Value of the Machine as on $1^{st}$ April, $2017 - $Loss on Sale
$= ₹\ (48,000 - 8,000) = ₹\ 40,000$
  1. Calculation of Sale proceeds from Machinery sold on $1^{st}$ July $2018:$
Book Value of the Machine as on $1^{st} $July, $2018$ $=\bigg[\frac{\text{Total opening balance of Machinery on this date}}{4}-\text{Depreciation}\bigg]$
$=\bigg[\Big(\frac{1,68,000}{4}\Big)-1,500\bigg]=₹\ 40,500$
Loss on Sale of Machinery $= ₹\ 12,500$
Sale proceeds from the Machinery = Book Value of the Machine as on $1^{st}$ July, $2018 -$ Loss on Sale
$= ₹\ (40,500 - 12,500) = ₹\ 28,000$
 
View full question & answer→
Question 186 Marks
A company purchased on 1st July, 2015 machinery costing ₹ 30,000. It further purchased machinery on 1st January, 2016 costing ₹ 20,000 and on 1st October, 2016 costing ₹ 10,000. On 1st April, 2017, one-third of the machinery installed on 1st July, 2015 became obsolete and was sold for ₹ 3,000. The company follows financial year as accounting year.
Show how the Machinery Account would appear in the books of company if depreciation is charged @ 10% p.a. on Written Down Value Method.
Answer
Working Note:Calculation of Profit or Loss on Sale of Plant I$\Big(\frac{1}{3}\Big):$
View full question & answer→
Question 196 Marks
A Van was purchased on 1st April, 2016 for ₹ 60,000 and ₹ 5,000 was spent on its repair and registration. On 1st October, 2017 another van was purchased for ₹ 70,000. On 1st April, 2018, the first van purchased on 1st April, 2016 was sold for ₹ 45,000 and a new van costing ₹ 1,70,000 was purchased on the same date. Show the Van Account from 2016-17 to 2018-19 on the basis of Straight Line Method, if the rate of Depreciation charged is 10% p.a. Assume that books are closed on 31st March every year.
Answer

Working Notes:
  1. Calculation of Annual Depreciation:
Maruti Van (I) $=65,000\times\frac{10}{100}$

$=₹\ 6,500$

Maruti Van (II) $=70,000\times\frac{10}{100}$

$=₹\ 7,000$

Maruti Van (III) $=1,70,000\times\frac{10}{100}$

$=₹\ 17,000$
  1. Calculation of profit or loss on sale of Van (I):
View full question & answer→
Question 206 Marks
M/s. P & Q purchased machinery for ₹ 40,000 on 1st October, 2016. Depreciation is provided @ 10% p.a. on the Diminishing Balance. On 31st January, 2019, one-fourth of the machinery was found unsuitable and disposed off for ₹ 5,600. On the same date new machinery at a cost of ₹ 15,000 was purchased. Write up the Machinery account for the years ended 31st March, 2017, 2018 and 2019. Accounts are closed on 31st March each year.
Answer
Working Note: Calculation of Profit or Loss on Sale of Machine I $\Big(\frac{1}{4}\Big):$
View full question & answer→
Question 216 Marks
The original cost of furniture amounted to ₹ 4,000 and it is decided to write off 5% on the original cost as Depreciation at the end of each year. Show the Ledger Account as it will appear during the first four years. Show also how the same account will appear if it was decided to write off 5% p.a. on the diminishing balance of the asset each year.
Answer

Note:
Depreciation p.a. $=4,000\times\frac{5}{100}$
$=₹\ 200\text{ p.a.}$
Note:
Depreciation p.a. $=\text{Opening Balance}\times\frac{5}{100}$
View full question & answer→
Question 226 Marks
Following balances appear in the books of X Ltd. as on 1st April, 2018:
 
₹
Machinery A/c
5,00,000
Provision for Depreciation A/c
2,25,000
The machinery is depreciated @ 10% p.a. on the Fixed Instalment Method. The accounting year being April-March. On 1st October, 2018, a machinery which was purchased on 1st July, 2015 for ₹ 1,00,000 was sold for ₹ 42,000 plus CGST and SGST @ 6% each and on the same date a new machine was purchased for ₹ 2,00,000 paying IGST @ 12%. Prepare Machinery Account and Provision for Depreciation Account for the year ended 31st March, 2019.
Answer


Working Notes:
  1. Calculation of Loss on Sale of Machinery:
  1. Calculation of Depreciation Charged during the year:
  1. Journal entries for sale and purchase with GST:
​​​​​​​
View full question & answer→
Question 236 Marks
An asset was purchased for ₹ 10,500 on 1st April, 2012. The scrap value was estimated to to be ₹ 500 at the end of asset's 10 years' life. Straight Line Method of depreciation was used. The accounting year ends on 31st March every year. The asset was sold for ₹ 600 on 31st March, 2019. Calculate the following:
  1. The Depreciation expense for the year ended 31st March, 2013.
  2. The net book value of the asset on 31st March, 2017.
  3. The gain or loss on sale of the asset on 31st March, 2019
Answer
  1. Depreciation Expense for the year ended March 31, 2013 is ₹ 1000
  2. The Net Book Value of the asset on March 31, 2017 is ₹ 5,500
  3. Loss on Sale of the asset on March 31, 2019 is ₹ 2,900
View full question & answer→
Question 246 Marks
Following balances appear in the books of M/s. Amrit as on 1st April, 2018:
2018
 
₹
1st April
Machinery A/c
60,000
 
Provision for Depreciation A/c
36,000
On 1st April, 2018, they decided to dispose off a machinery for ₹ 8,400 which was purchased on 1st April, 2014 for ₹ 16,000.
You are required to prepare the Machinery Account, Provision for Depreciation Account and Machinery Disposal Account for the year ended 31st March, 2019. Depreciation was charged at 10% p.a on Cost following Straight Line Method.
Answer
Working Note: Calculation of profit or loss on Machine Sold:
View full question & answer→
Question 256 Marks
What are two methods for providing Depreciation? Give the merits and demerits of each method.
Answer
Depreciation for the year is computed using any of the following two methods:
  1. Fixed Percentage on Original Cost or Fixed Instalment or Straight Line Method; and
  2. Fixed Percentage on Diminishing Balance or Reducing Instalment Method or Written Down Value Method.
Merits of the Straight Line Method:
  1. It is a simple method of calculating the Depreciation.
  2. In this method, asset can be depreciated up to the estimated scrap value.
  3. In this method, it is easy to know the amount of Depreciation.
  4. Every year, the Profit and Loss Account is debited by the same amount of Depreciation, so there is same effect on the Profit and Loss Account every year.
Demerits of the Straight Line Method:
  1. There is no arrangement of interest on capital invested in asset in this method.
  2. With the passage of time, work efficiency of asset decreases and repair expenses increase. As a result, in later years, there is more load on the Profit and Loss Account.
  3. Sometimes in this method, the book value of asset becomes nil, still the assets are used in the business.
Merits of the Written Down Value Method:
  1. There is same weightage on Profit and Loss Account of depreciation and repair expenses.
  2. Practically, this method is more easy.
  3. On the expansion and increase in assets, the depreciation can be computed easily by this method.
  4. This method is accepted under the Income Tax Act.
Demerits of the Written Down Value Method:
  1. In this method, the value of assets cannot become zero.
  2. It is difficult to ascertain proper rate of Depreciation.
  3. In this method also, there is no provision of interest on capital invested in assets.
View full question & answer→
Question 266 Marks
On 1st July, 2016, Sohan Lal & Sons purchased a plant costing ₹ 60,000. Additonal plant was purchased on 1st January, 2017 for ₹ 40,000 and on 1st October, 2017, for ₹ 20,000, plus CGST and SGST @ 6% each. On 1st April, 2018, one-third of the plant purchased on 1st July, 2016, was found to have become obsolete and was sold for ₹ 6,000, charging CGST and SGST @ 6% each.
Prepare the Plant Account for the first three years in the books of Sohan Lal & Sons. Depreciation is charged @ 10% p.a. on Straight Line Method. Accounts are closed on 31st March each year.
Answer

Working Notes:
  1. Calculation of Depreciation:
Plant I $=60,000\times\frac{10}{100}$

$=₹\ 6,000\text{ p.a.}$

Plant II $=40,000\times\frac{10}{100}$

$=₹\ 4,000\text{ p.a.}$

Plant III $=20,000\times\frac{10}{100}$

$=₹\ 2,000\text{ p.a.}$
  1. Calculation of profit on loss on sale of Plant I:
  1. Journal entries for purchase and sale with GST:
View full question & answer→
Question 276 Marks
Distinguish between the Straight Line Method and Written Down Value Method of providing Depreciation.
Answer
 
Basis
Straight Line Method
Written Down Value Method
1.
Depreciation Charge
Depreciation is calculated on the original cost of a fixed asset.
Depreciation is calculated on the diminishing balance or written down value of a fixed asset.
2.
Amount of Depreciation
The amount of Depreciation remains the same for all years.
The amount of Depreciation reduces year after year.
3.
Zero Balance
At the expiry of the working life of the asset, the balance in the Asset Account reduces to zero.
The balance in the Asset Account will not reduce to zero.
4.
Cost of Depreciation and Repairs
The method is more suitable for assets which get depreciated on account of expiry of working life of the asset.
The combined cost on account of Depreciation and repairs remains, more or less, equal throughout the period.
5.
Suitability
This method is more suitable for assets which get depreciated on account of expiry of working life og the asset.
This method is suitable for such assets which require more and more repairs in the later years of their working life.
6.
Calculation-Easy or Difficult
It is easy to calculate the rate of Depreciation.
It is difficult to calculate the rate of Depreciation.
View full question & answer→
Question 286 Marks
Astha Engineering Works purchased a machine on 1st July, 2015 for ₹ 1,80,000 and spent ₹ 20,000 on its installation.
On 1st April, 2016, if purchased another machine for ₹ 2,40,000. On 1st October, 2017, the machine purchased on 1st July, 2015 was sold for ₹ 1,45,000 plus CGST and SGST @ 6% each. On 1st January, 2018, another machine was purchased for ₹ 4,00,000 plus IGST @ 12%.
Prepare the Machinery Account for the years ended 31st March, 2016 to 2018 after charging Depreciation @ 10% p.a. by Diminishing Balance Method. Accounts are closed on 31st March every year.
Answer

Working Note:
  1. Calculation of profit or loss on sale of Machine I:
  1. Journal entry for purchase with GST:
​​​​​​​
View full question & answer→
Question 296 Marks
On 1st April, 2016, a machinery was purchased for ₹ 20,000. On 1st October, 2017 another machine was purchased for ₹ 10,000 and on 1st April, 2018, one more machine was purchased for ₹ 5,000. The firm depreciates its machinery @ 10% p.a. on the Diminishing Balance Method.
What is the amount of Depreciation for the years ended 31st March, 2017, 2018 and 2019? What will be the balance in Machinery Account as on 31st March, 2019?
Answer
  1. Calculation of Depreciation from April 01, 2016 to March 31, 2019:
Depreciation Rate: 10% p.a. on Diminishing Balance Method.

  1. Balance in Machinery Account as on March 31, 2019 will be Rs 27,630:
Working Notes: Preparation of Machinery Account.

View full question & answer→
Question 306 Marks
On 1st July, 2015, A Co. Ltd. purchases second-hand machinery for ₹ 20,000 and spends ₹ 3,000 on reconditioning and installing it. On 1st January, 2016, the firm purchases new machinery worth ₹ 12,000. On 30th June, 2017, the machinery purchased on 1st January, 2016, was sold for ₹ 8,000 and on 1st July, 2017, a fresh plant was installed.
Payments for this plant was to be made as follows:
1st July, 2017
₹ 5,000
30th June, 2018
₹ 6,000
30th June, 2019
₹ 5,500
Payments in 2018 and 2019 include interest of ₹ 1,000 and ₹ 500 respectively.
The company writes off 10% p.a. on the original cost. The accounts are closed every year on 31st March. Show the Machinery Account for the year ended 31st March, 2018.
Answer

Working Notes:
  1. Calculation of Depreciation:
Machine I $=23,000\times\frac{10}{100}$

$=₹\ 2,300\text{ p.a.}$

Machine II $=12,000\times\frac{10}{100}$

$=₹\ 1,200\text{ p.a.}$

Machine III $=15,000\times\frac{10}{100}$

$=₹\ 1,500\text{ p.a.}$
  1. Calculation of profit on loss on sale of Machine (II):
View full question & answer→
Question 316 Marks
What is Depreciation? What is the need for providing Depreciation?
Answer
Describe the two methods of providing Depreciation. Depreciation means fall in the value of tangible fixed asset because of its usage or with efflux of time or due to obsolescence or accident. Depreciation is a permanen, continuing and gradual fall in the value of a fixed asset. Depreciation is provided with the following objectives:
  1. To Determine Correct Profit or Loss: Depreciation is an expense of the business and, therefore, is a charge against revenue. If it is not accounted as an expense, Profit and Loss Account for the accounting period would not give a true and fair view of the profitability of the business (i.e., net profit/ net loss).
  2. To show True and Fair View of the Financial Position: Depreciation, if not charged, would result in assets being stated at a higher value. As a result of this the Position Statement (Balance Sheet) would not present a true and fair view of the financial position.
  3. To determine the Cost of Production: Depreciation is taken into consideration for calculating the cost of production. If it is not taken into account, cost of the production will be lower by the amount of depreciation.
  4. To provide funds for replacement: Depreciation is a non-cash expense and when charged the amount of depreciation is retained in the business and can be used for the replacement of fixed assets after the expiry of their estimated useful life.
  5. To comply with legal provisions: It is necessary to charge depreciation to ith the provisions of the Companies Act and the Income Tax Act.
Depreciation for the year is computed using any of the following two methods:
  1. Fixed Percentage on Original Cost or Fixed Instalment or Straight Line Method; and
  2. Fixed Percentage on Diminishing Balance or Reducing Instalment Method or Written Down Value Method.
View full question & answer→
Question 326 Marks
Sharma & Co. whose books are closed on 31st March, purchased a machinery for ₹ 1,50,000 on 1st April, 2016, Additional machinery was acquired for ₹ 50,000 on 1st October, 2016. Certain machinery which was purchased for ₹ 50,000 on 1st October, 2016 was sold for ₹ 40,000 on 30th September, 2018.
Prepare the Machinery Account and Accumulated Depreciation Account for all the years up to the year ended 31st March, 2019. Depreciation is charged @ 10% p.a. on Straight Line Method. Also, show the Machinery Disposal Account.
Answer
Working Note: Calculation of Profit or Loss on sale of Machine II:
View full question & answer→
Generate Paper FreeAll Depreciation topics
6 Marks Question - Account STD 11 Commerce Questions - Vidyadip