Accounting Treatment for the Purchase of Machinery

The purchase of machinery on 1st April 2016 for 400,000 is a capital expenditure and needs to be recorded in the books of accounts. The accounting treatment for this transaction is as follows:

1. Debit Machinery Account: The machinery account is debited with the cost of the machinery purchased. This increases the value of the machinery in the books of accounts.

2. Credit Cash/Bank Account: The cash or bank account is credited with the amount paid for the machinery. This shows the outflow of cash or reduction in the bank balance.

Accounting Treatment for the Purchase of Additional Machinery

The purchase of additional machinery on 1st October in the same accounting year for 200,004 is also a capital expenditure and needs to be recorded in the books of accounts. The accounting treatment for this transaction is as follows:

1. Debit Machinery Account: The machinery account is debited with the cost of the additional machinery purchased. This increases the value of the machinery in the books of accounts.

2. Credit Cash/Bank Account: The cash or bank account is credited with the amount paid for the additional machinery. This shows the outflow of cash or reduction in the bank balance.

Accounting Treatment for the Sale of Obsolete Machinery

On 1st October 2017, the machinery purchased on 1st April 2016 became obsolete and was sold off for Rs 180,000. The accounting treatment for this transaction is as follows:

1. Debit Cash/Bank Account: The cash or bank account is debited with the amount received from the sale of the machinery. This shows the inflow of cash or increase in the bank balance.

2. Debit Accumulated Depreciation Account: The accumulated depreciation account is debited with the total depreciation charged on the machinery from the date of purchase till the date of sale. This reduces the value of accumulated depreciation in the books of accounts.

3. Credit Machinery Account: The machinery account is credited with the original cost of the machinery. This removes the machinery from the books of accounts.

4. Credit Profit and Loss Account: The profit and loss account is credited with the difference between the sale proceeds and the original cost of the machinery. This represents the gain or loss on the sale of the machinery.

Conclusion

In summary, the purchase of machinery is recorded by debiting the machinery account and crediting the cash or bank account. The sale of machinery is recorded by debiting the cash or bank account, accumulated depreciation account, and crediting the machinery account and profit and loss account. These accounting treatments help in accurately reflecting the value of machinery in the books of accounts and determining the gain or loss on its sale.