Plant Account for 4 Years with Diminishing Balance Method

Introduction:
In this question, we are required to show the plant account for 4 years assuming that the books are closed on 31st March every year. The plant was purchased for Rs. 60,000 on 1st April 2009 and its estimated residual value at the end of its working life of 10 years is Rs. 20,920. Depreciation is to be provided at 10% per annum on diminishing balance method.

1. Calculation of Depreciation:
The first step is to calculate the annual depreciation. As per the question, depreciation is to be provided at 10% per annum on diminishing balance method. Therefore, the annual depreciation will be calculated as follows:
Annual Depreciation = 10% of Rs. 60,000 = Rs. 6,000

2. Plant Account:
We will now prepare the plant account for 4 years. The plant account will show the cost of the plant, the annual depreciation charged and the accumulated depreciation.

Plant Account
Year (31st March) Particulars Amount (Rs.) Amount (Rs.)
2009-10 To Cash A/c (Purchase of Plant) 60,000
2010-11 To Depreciation A/c 6,000
2011-12 To Depreciation A/c 5,400
2012-13 To Depreciation A/c 4,860
2013-14 To Depreciation A/c 4,374
31st March 2014 By Balance c/d (Plant at Cost) 39,392
60,000 20,634

Explanation of Plant Account:
- In the first year i.e. 2009-10, the plant was purchased and cash was paid for it. Therefore, we debit the cash account and credit the plant account with Rs. 60,000.
- In the second year i.e. 2010-11, we charge depreciation on the plant at 10% on the opening balance of Rs. 60,000. Therefore, we debit the depreciation account and credit the plant account with Rs. 6,000.
- In the third year i.e. 2011-12, we charge depreciation on the opening balance of Rs. 54,000 (i.e. Rs. 60,000 - Rs. 6,000). Therefore, we debit the depreciation account and credit the plant account with Rs. 5,400 (i.e. 10% of Rs. 54,000).
- Similarly, in the fourth year i.e. 2012-13 and fifth year i.e. 2013-14, we charge depreciation on the opening balance of the respective years and credit the plant account accordingly.
- At the end of the fourth year, the closing balance of the plant account is Rs. 39,392 (i.e. Rs. 60,000 - Rs. 20,634). This is also the opening balance for the next year.

Conclusion:
Thus, by following the above steps, we can prepare the plant account for any number of years as required. The diminishing balance method of depreciation is a commonly used method of calculating depreciation and helps in spreading the cost of the asset over its useful life.

Balance 39'366