A firm purchased on 1st april 2010 a machinery for rs 400000. on 1st o...
Calculation of Depreciation
- Depreciation to be provided at the rate of 10% per annum on the cost of machinery.
- Cost of machinery on 1st April 2010 = Rs. 400,000
- Depreciation for the year ending 31st March 2011 = 10% of Rs. 400,000 = Rs. 40,000
- Cost of machinery on 31st March 2011 = Rs. 400,000 - Rs. 40,000 = Rs. 360,000
- Depreciation for the year ending 31st March 2012 = 10% of Rs. 360,000 = Rs. 36,000
- Cost of machinery on 31st March 2012 = Rs. 360,000 - Rs. 36,000 = Rs. 324,000
- Depreciation for the year ending 31st March 2013 = 10% of Rs. 324,000 = Rs. 32,400
- Cost of machinery on 31st March 2013 = Rs. 324,000 - Rs. 32,400 = Rs. 291,600
Accounting Treatment
- Purchase of machinery on 1st April 2010: Debit Machinery account with Rs. 400,000
- Purchase of machinery on 1st October 2010: Debit Machinery account with Rs. 200,000
- Sale of machinery on 1st October 2011: Credit Machinery account with Rs. 180,000 and Debit Profit and Loss account with Rs. 144,000 (i.e. Rs. 180,000 - Rs. 36,000 depreciation for 18 months)
- Purchase of machinery on 1st October 2012: Debit Machinery account with Rs. 500,000
- Sale of machinery on 1st October 2012: Credit Machinery account with Rs. 170,000 and Debit Profit and Loss account with Rs. 147,600 (i.e. Rs. 170,000 - Rs. 32,400 depreciation for 12 months)
- Depreciation for the year ending 31st March 2013: Debit Profit and Loss account with Rs. 32,400 and Credit Depreciation account with Rs. 32,400
- Cost of machinery on 31st March 2013: Debit Machinery account with Rs. 291,600
Calculation of Cost on 31st March every year
- Cost of machinery on 31st March 2011: Rs. 360,000 (i.e. Rs. 400,000 - Rs. 40,000 depreciation for 1 year)
- Cost of machinery on 31st March 2012: Rs. 324,000 (i.e. Rs. 360,000 - Rs. 36,000 depreciation for 1 year)
- Cost of machinery on 31st March 2013: Rs. 291,600 (i.e. Rs. 324,000 - Rs. 32,400 depreciation for 1 year)