Accounts :-Depreciation

Meaning:- In every busıness 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 use ulness for the business operations. Fall in the value and
utility of such assets due to their constant use and expiry of time 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.

Definitions : Some of the well-known definitions of depreciation are given below :

1. "Depreciation is the gradual and permanent decrease in the value of an asset from any
cause. --R.N.Carter
2. . "Depreciation may be defined as the permanent and continuing diminution in L. the quality,
quantity or the value of an asset." -- William Pickles
3. "'Depreciation is the measure of the exhaustion of the effective life of an asset from any
cause during a given period. “ --Spicer & Peglar
4. "It is a matter of common knowledge that all fixed assets such as plant, machinery building,
furniture etc. gradually diminish in value as they get older and become worn out by constant
use in the business.” --J.R. Batliboi

Accounting Treatment :

Following entries are passed in this method:-

1. Entry for purchase of Asset:-

Asset Ac Dr.
To Bank/Vendor A/c

2. Entry for providing depreciation at the end of each year

Depreciation A/c Dr.

To Asset Ac

3.Entry for the amount realised on sale of Asset

Bank A/c Dr.

To Asset A/c

4. Entry in case of loss on sale of Asset

Profit & Loss A/c/ Statement of Profit & Loss* Dr.

To Asset A/c

5. Entry in case of profit on sale of Asset :

Asset A/c Dr.

 To Profit & Loss A/c/ Statement of Profit & Loss*

In case of Companies, a ‘Statement of Profit & Loss' is prepared in place of ' Profit & Loss A/c .’

Problem 1:- On Ist April, 2015, Atul Glass Limited purchased a Machine for ₹90,000 and on its
carriage and ₹4, 000 on its erection. On the date of purchase, it was estimated that the effective life
of the machine will be 10 years and after 10 years its spent ₹6. 000 scrap value will be ₹20,000
Prepare Machine A/c and Depreciation' A/c for 4 years after providing depreciation on Fixed
Instalment Method. Accounts are closed on 31st March every year.

Problem 2:- On 1st April, 2015, X Ltd. purchased a Plant and Machinery for 43,000. It was estimated
that the effective life of the Plant and Machinery will be 10 years and after 10 vears its scrap value
will be ₹3.000.

On Ist April, 2016, the Company purchased additional machine for ₹25,000, of which the effective
life will be 15 years and scrap value ₹2500.

On 1st October, 2017, a new machine was purchased for ₹12,000, of which scrap value will be ₹2,000
and effective life 20 years.

Show the Plant and Machinery A/c upto 31st March 2019, if depreciation provided on Straight Line
Method. The accounts are closed on 31st March every year.

Problem 3: -On Ist April, 2013 a Company purchased a plant for ₹60,000 .On 1st October in

the same year, it purchased additional plant worth ₹18,000 and spends ₹2,000 on its erection. On 1st
October, 2015. the plant purchased on 1st April, 2013 having become obsolete, is sold off for
₹27,000. On 1st January, 2017, fresh plant was purchased for ₹64,000 and on the same date the
plant purchased on lst October, 2013 was sold for ₹10,000.

Depreciation is provided at 10% per annum on Original cost on 31st March every year. Show the
Plant Account upto 31st March, 2017.
Problem 5:- A company whose accounting year is the calendar year, purchased on Ist April, 2008,
machinery costing ₹30,000. It purchased further machinery on lst October, 2008, costing ₹20,000
and on 1st July, 2009, costing ₹10,000.

On 1st January, 2010, one-third of the machinery which was installed on 1st April, 2008 became
obsolete and was sold for ₹3,000.

Show how the machinery account would appear in the books of the company, it being given that
machinery was depreciated by Fixed Instalment at 10 percent p.a.

Problem 6:- On April 01, 2000 M/s Bajrang Marbles purchased a Machine 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 31st March 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.

Problem 6:- Gurman Plastics bought machinery for ₹ 1,80,000 on 1st April, 2022 and ₹ 20,000 are
spent on its installation. Its estimated useful life is 5 years. Its realisable value at the end of the
estimated useful life is ₹ 10,000. Determine the amount of annual depreciation and rate of
depreciation. The books of account are closed on 31st March, every year.

Problem 7:- Ram Bros purchased a machine on 1st October, 2020 at a cost of ₹ 1,40,000 and spent .
₹10,000 on its installation. The firm writes off depreciation 10% p.a. of the original cost every year.
The books are closed on 31st March every year.

Show Machinery Account and Depreciation Account for three years.

Problem 8:- Saya & Co. purchased a machine on 1st April, 2020 for ₹ 4,82,000 and incurred ₹18,000
on its installation. Estimated useful life of the machine is 10 years and its scrap value at the end of its
estimated useful life is ₹50,000. The books of account are closed on 31st March, every year.

Prepare the Machinery Account for first three years charging depreciation by Straight Line Method.

Problem 9:- Kanitkar purchased a machinery against cheque for ₹ 1,00,000 on lst October 2020.
Another machine was purchased for ₹ 60,000 against cheque on 1st April, 2022. Deprecia tion is
charged @ 10% p.a. by the Straight Line Method. Accounts are closed every year on 31st March. Pass
necessary Journal entries for the years ended 31st March, 2021, 2022, and 2023, prepare Machinery
Account and show Machinery in the Balance Sheet:

(i) When Provision for Depreciation Account is not maintained

(ii) When Provision for Depreciation Account is maintained.

Problem 10:- X Ltd. purchased on April 1, 2015 a second hand plant for ₹4,00 ,000 and immediately
spent ₹80,000 for its overhauling and ₹20,000 for its installation. On Oct.,1, 2018 the plant became
obsolete and was sold for ₹2,00,000. Depreciation is provided at 10% p.a. on original cost method.
Accounts are closed each year on 31st March.

Show the necessary Ledger Accounts assuming that:

(a) Provision for Depreciation Account is not maintained,and

(b) 'Provision for Depreciation Account' is maintained.

Problem 11:- On April 1. 2012 a firm purchased a machinery for ₹2, 00. ,000 On August 2015 the
machinery became obsolete and was auctioned for ₹90. 000 The firm provides depreciation on its
machinery @ 10% per annum on written down value method. The books are closed on 31st March of
every year.

Show the necessary Ledger Accounts assuming that

(a) "Provision for Depreciation Account' is not maintained, and

(b) Provision for Depreciation Account' is maintained.

Problem 12:- A machine was purehased on 1st April, 2021 for ₹ 2,50,000, On 1st October, 2021,
another machine was purchased for ₹ 1,50,000, Estimated scrap values were ₹ 10,000 and ₹5,000
respeetively, Depreciation is to be provided @ 10% P.a. on the machine under the Written Down
Value Method (Redueing Balance Method), Pass the Journal entries and prepare Machinery Account
for the Year ended 31st March, 2022 and 2023.