Varma traders bought a machinery on 1st april '2012 for rs 11900 and spent rs 1500 on its establishment . the estimated life of the machine is five years. After which its residual value is estimated rs 1400. Calculate annual depreciation according to fixed instalment method and prepare machine account for first three years.?

Question

Answer

Calculation of Annual Depreciation and Preparation of Machine Account

Fixed Instalment Method

Under the fixed instalment method, the annual depreciation is calculated by dividing the original cost of the machine minus its residual value by the estimated life of the machine.

Annual Depreciation = (Original Cost - Residual Value) / Estimated Life

Annual Depreciation = (Rs 11,900 - Rs 1,400) / 5 = Rs 2,100

Machine Account for the First Three Years

Year 1:

Particulars	Amount (Rs)
Machine A/C (Original Cost)	11,900.00
Establishment A/C	1,500.00
To Bank A/C	13,400.00

Depreciation A/C:

Particulars	Amount (Rs)
Depreciation A/C	2,100.00
To Accumulated Depreciation A/C	2,100.00

Year 2:

Particulars	Amount (Rs)
Depreciation A/C	2,100.00
To Accumulated Depreciation A/C	2,100.00

Year 3:

Particulars	Amount (Rs)
Depreciation A/C	2,100.00
To Accumulated Depreciation A/C	2,100.00

Explanation

The fixed instalment method of depreciation assumes that the asset will depreciate by the same amount each year. In this case, the annual depreciation is calculated by dividing the original cost of the machine minus its residual value by the estimated life of the machine. The annual depreciation is then charged to the depreciation account and credited to the accumulated depreciation account.

In the machine account, the original cost of the machine and the establishment expenses are debited to the account, while the amount paid for the machine is credited to the bank account. In the depreciation account, the annual depreciation is debited to the account, and the same amount is credited to the accumulated

Answer

Answer

Depreciation₹2,400p.a., Bal. of machinery account at the end of third year₹6, 200

Similar B Com Doubts

Verma traders bought a machinery on 1st April 2012 for rs 11900 and spent rs 1500 on it's establishment. The estimated life of machine is five years. After which is residual value is estimated 1400?

Nayak printers purchased on 1st April ,2013 a machine for rs 1,00,000 on 1st October in the same year,second machine costing rs 50,000 was purchased. Depreciation was provided on 31st march annually at 10% per annum by fixed instalment method give the machinery account for 2013-2014 and 2014-2015.?

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