1. XYZ Concern purchased machinery for Rs. 180000 on 1.1.17 and follow...
Introduction:
In this question, we are given the details of XYZ Concern's machinery purchase and the change in depreciation method. We need to prepare the machinery account for the year 2020, considering the change in depreciation method and the necessary adjustment.
Machinery Account for the Year 2020:
Step 1: Calculating Depreciation for 2017-2019 using Straight Line Method:
- Machinery purchased on 1.1.17 for Rs. 180,000
- Straight line depreciation rate is 15% per annum
Depreciation for 2017:
Depreciation = 15% of Rs. 180,000 = Rs. 27,000
Depreciation for 2018:
Depreciation = 15% of Rs. 180,000 = Rs. 27,000
Depreciation for 2019:
Depreciation = 15% of Rs. 180,000 = Rs. 27,000
Step 2: Calculating Depreciation for 2020 using Diminishing Balance Method:
- Machinery purchased on 1.1.17 for Rs. 180,000
- Diminishing balance depreciation rate is 10% per annum
Depreciation for 2020:
Depreciation = 10% of (Rs. 180,000 - Rs. 81,000) = Rs. 9,900
Step 3: Preparing Machinery Account for the Year 2020:
Machinery Account for the Year 2020
------------------------------------------------
Date | Particulars | Amount (Rs.) |
------------------------------------------------
01.01.20 | To Balance b/d | 81,000 |
------------------------------------------------
31.12.20 | By Depreciation | 9,900 |
------------------------------------------------
31.12.20 | By Balance c/d | 71,100 |
------------------------------------------------
Explanation:
- The balance brought down (b/d) on 1.1.20 is Rs. 81,000, which is the net book value of the machinery after straight line depreciation till 31.12.19.
- Depreciation charged for the year 2020 using diminishing balance method is Rs. 9,900.
- The closing balance (c/d) on 31.12.20 is Rs. 71,100, which represents the net book value of the machinery after depreciation for the year 2020.
Conclusion:
In conclusion, the machinery account for the year 2020 shows the depreciation charged using the diminishing balance method and the net book value of the machinery at the end of the year. This account helps in keeping track of the depreciation expenses and the value of the machinery over time.