Preparation of Machinery Account with Depreciation by Fixed Installment Method

Depreciation is the reduction in the value of an asset due to wear and tear, obsolescence, or other factors. In accounting, depreciation is a way to allocate the cost of an asset over its useful life. Machinery is a type of asset that is used in manufacturing or production.

Initial Cost of Machinery
The initial cost of machinery is the cost of purchasing and erecting the machine. In this case, the initial cost of the machinery is Rs. 40,000 + Rs. 4,000 = Rs. 44,000.

Estimated Effective Life of Machinery
The estimated effective life of machinery is the useful life of the machine. In this case, the estimated effective life of the machinery is 10 years.

Break Up Value of Machinery
The break-up value of machinery is the estimated value of the machine at the end of its useful life. In this case, the break-up value of the machinery is Rs. 3,000.

Depreciation by Fixed Installment Method
The fixed installment method is a depreciation method in which the same amount of depreciation is charged each year. The formula for calculating depreciation by fixed installment method is:

Depreciation per year = (Initial Cost - Break Up Value) / Estimated Effective Life

In this case, the depreciation per year is (Rs. 44,000 - Rs. 3,000) / 10 = Rs. 4,100.

Preparation of Machinery Account
The machinery account is a ledger account that is used to record the cost and depreciation of machinery. The machinery account can be prepared as follows:

Machinery Account

| Date | Particulars | Amount (Rs.) | Date | Particulars | Amount (Rs.) |
|------|------------|--------------|------|------------|--------------|
| | To Bank A/c | 44,000 | | | |
| | | | 1 | Depreciation | 4,100 |
| | | | 2 | Depreciation | 4,100 |
| | | | 3 | Depreciation | 4,100 |
| | | | 4 | Depreciation | 4,100 |
| | | | 5 | Depreciation | 4,100 |
| | | | | To Break Up | 3,000 |
| 5 | To Profit and Loss A/c | 20,500 | | | |
|------|------------|--------------|------|------------|--------------|
| | Total | 44,000 | | Total | 20,500 |

In this account, the initial cost of the machinery is recorded on the debit side. The depreciation for each year is recorded on the credit side, and the break-up value is recorded on the credit side in the final year. The total depreciation is recorded on the credit side, and the profit and loss account is debited with the total depreciation.

Conclusion
Depreciation is an important concept in accounting. The fixed installment method is a simple and easy method of

Depreciation for 1 year =700
5 years =700×5 =3500