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On 1st Jan., 2012 a machine was purchased for 28,000 and 2,000 were incurred on its establishment. On 1st July, 2013 second machine was purchased for 40,000. On 1st July, 2015 that machine which was purchased on 1st Jan., 2012 was sold for 11,000 and on the same day a new machine was purchased for 15,000. Depreciation is charged @ 10% p.a. by Fixed Instalment Method.?
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On 1st Jan., 2012 a machine was purchased for 28,000 and 2,000 were in...
Fixed Instalment Method for Depreciation Calculation
Fixed Instalment Method is a widely used method for calculating depreciation on fixed assets. This method assumes that the asset depreciates at a constant rate over its useful life. The depreciation is calculated as a fixed percentage of the original cost of the asset, and is charged as an equal instalment in each accounting period.
Calculation of Depreciation
The first machine was purchased on 1st Jan., 2012 for 28,000 and 2,000 were incurred on its establishment. The total cost of the machine is 30,000. The second machine was purchased on 1st July, 2013 for 40,000. The total cost of both machines is 70,000.
The depreciation is charged at 10% p.a. by Fixed Instalment Method, which means that the annual depreciation is 7,000 (10% of 70,000). The depreciation is charged as a fixed instalment, which means that the depreciation for each year is 3,500 (7,000/2).
Depreciation Schedule
Sale of Machine and Purchase of New Machine
On 1st July, 2015, the first machine was sold for 11,000. The machine was in use for 3.5 years, which means that its written down value (WDV) was 16,000 (the closing balance on 31st December, 2014). The sale of the machine resulted in a loss of 5,000 (11,000 - 16,000).
On the same day, a new machine was purchased for 15,000. The depreciation on the new machine will be calculated from 1st July, 2015.
Conclusion
Fixed Instalment Method is a simple and easy method for calculating depreciation. It is widely used by businesses to calculate the depreciation on their fixed assets. The method assumes that the asset depreciates at a constant rate over its useful life, and charges the depreciation as a fixed instalment in each accounting period.
Fixed Instalment Method is a widely used method for calculating depreciation on fixed assets. This method assumes that the asset depreciates at a constant rate over its useful life. The depreciation is calculated as a fixed percentage of the original cost of the asset, and is charged as an equal instalment in each accounting period.
Calculation of Depreciation
The first machine was purchased on 1st Jan., 2012 for 28,000 and 2,000 were incurred on its establishment. The total cost of the machine is 30,000. The second machine was purchased on 1st July, 2013 for 40,000. The total cost of both machines is 70,000.
The depreciation is charged at 10% p.a. by Fixed Instalment Method, which means that the annual depreciation is 7,000 (10% of 70,000). The depreciation is charged as a fixed instalment, which means that the depreciation for each year is 3,500 (7,000/2).
Depreciation Schedule
| Year | Opening Balance | Depreciation | Closing Balance |
|---|---|---|---|
| 2012 | 30,000 | 3,500 | 26,500 |
| 2013 | 26,500 | 3,500 | 23,000 |
| 2014 | 23,000 | 3,500 | 19,500 |
| 2015 | 19,500 | 3,500 | 16,000 |
Sale of Machine and Purchase of New Machine
On 1st July, 2015, the first machine was sold for 11,000. The machine was in use for 3.5 years, which means that its written down value (WDV) was 16,000 (the closing balance on 31st December, 2014). The sale of the machine resulted in a loss of 5,000 (11,000 - 16,000).
On the same day, a new machine was purchased for 15,000. The depreciation on the new machine will be calculated from 1st July, 2015.
Conclusion
Fixed Instalment Method is a simple and easy method for calculating depreciation. It is widely used by businesses to calculate the depreciation on their fixed assets. The method assumes that the asset depreciates at a constant rate over its useful life, and charges the depreciation as a fixed instalment in each accounting period.
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On 1st Jan., 2012 a machine was purchased for 28,000 and 2,000 were incurred on its establishment. On 1st July, 2013 second machine was purchased for 40,000. On 1st July, 2015 that machine which was purchased on 1st Jan., 2012 was sold for 11,000 and on the same day a new machine was purchased for 15,000. Depreciation is charged @ 10% p.a. by Fixed Instalment Method.?
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On 1st Jan., 2012 a machine was purchased for 28,000 and 2,000 were incurred on its establishment. On 1st July, 2013 second machine was purchased for 40,000. On 1st July, 2015 that machine which was purchased on 1st Jan., 2012 was sold for 11,000 and on the same day a new machine was purchased for 15,000. Depreciation is charged @ 10% p.a. by Fixed Instalment Method.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about On 1st Jan., 2012 a machine was purchased for 28,000 and 2,000 were incurred on its establishment. On 1st July, 2013 second machine was purchased for 40,000. On 1st July, 2015 that machine which was purchased on 1st Jan., 2012 was sold for 11,000 and on the same day a new machine was purchased for 15,000. Depreciation is charged @ 10% p.a. by Fixed Instalment Method.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for On 1st Jan., 2012 a machine was purchased for 28,000 and 2,000 were incurred on its establishment. On 1st July, 2013 second machine was purchased for 40,000. On 1st July, 2015 that machine which was purchased on 1st Jan., 2012 was sold for 11,000 and on the same day a new machine was purchased for 15,000. Depreciation is charged @ 10% p.a. by Fixed Instalment Method.?.
On 1st Jan., 2012 a machine was purchased for 28,000 and 2,000 were incurred on its establishment. On 1st July, 2013 second machine was purchased for 40,000. On 1st July, 2015 that machine which was purchased on 1st Jan., 2012 was sold for 11,000 and on the same day a new machine was purchased for 15,000. Depreciation is charged @ 10% p.a. by Fixed Instalment Method.? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about On 1st Jan., 2012 a machine was purchased for 28,000 and 2,000 were incurred on its establishment. On 1st July, 2013 second machine was purchased for 40,000. On 1st July, 2015 that machine which was purchased on 1st Jan., 2012 was sold for 11,000 and on the same day a new machine was purchased for 15,000. Depreciation is charged @ 10% p.a. by Fixed Instalment Method.? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for On 1st Jan., 2012 a machine was purchased for 28,000 and 2,000 were incurred on its establishment. On 1st July, 2013 second machine was purchased for 40,000. On 1st July, 2015 that machine which was purchased on 1st Jan., 2012 was sold for 11,000 and on the same day a new machine was purchased for 15,000. Depreciation is charged @ 10% p.a. by Fixed Instalment Method.?.
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