On 1.1.18 the balance of machinery account was rs 48600 in 1.7.18 a ne...
Calculation of Machinery Account for 2018
Opening Balance as on 1.1.18: Rs. 48,600
Purchase of new machine on 1.7.18: Rs. 24,000
Installation cost of new machine: Rs. 1,000
Sale of old machine on 1.9.18: Rs. 6,000
Original cost of old machine: Rs. 10,000
Depreciation Rate: 10% p.a
Method of Depreciation: Balance Method
Depreciation for the year:
- Old Machine: Rs. 1,000 (10% of Rs. 10,000)
- Opening Balance: Rs. 4,860 (Rs. 48,600 - Rs. 1,000)
- New Machine: Rs. 240 (10% of Rs. 2,400 - Rs. 240)
- Total Depreciation: Rs. 1,240
- Closing Balance: Rs. 70,600 (Rs. 48,600 + Rs. 24,000 + Rs. 1,000 - Rs. 6,000 - Rs. 1,240)
Journal Entries:
- On 1.7.18: Machinery A/c Dr. Rs. 24,000
- To Bank A/c Rs. 24,000 (Purchase of new machine)
- On 1.7.18: Machinery A/c Dr. Rs. 1,000
- To Bank A/c Rs. 1,000 (Installation cost of new machine)
- On 1.9.18: Bank A/c Dr. Rs. 6,000
- To Machinery A/c Rs. 6,000 (Sale of old machine)
- On 31.12.18: Depreciation A/c Dr. Rs. 1,240
- To Machinery A/c Rs. 1,240 (Depreciation for the year)
Explanation:
- Machinery account is a nominal account which is debited for the cost of new machinery purchased, installation cost of new machinery and depreciation charged during the year.
- It is credited for the sale of old machinery during the year.
- In this case, the opening balance of machinery account was Rs. 48,600 and a new machine was purchased for Rs. 24,000 with an installation cost of Rs. 1,000.
- An old machine was sold for Rs. 6,000 with an original cost of Rs. 10,000.
- Depreciation is charged at the rate of 10% p.a under the balance method.
- Depreciation for the year is calculated and charged to the machinery account.
- The closing balance of machinery account is calculated as Rs. 70,600.
- The journal entries for purchase, installation, sale and depreciation are passed in the books of accounts.
- The machinery account is closed at the end of the year by transferring the balance to the balance sheet.