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A machine purchased 1 April 2010 1,00,000 2nd April 2020 purchase 50,000 @ depreciation 10% Life = 5year Scrap value = 10,000 Depreciation a/c & machinery a/c 1. When provision for depreciation account is not mentioned 2. When provision for depreciation account is mentioned?
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A machine purchased 1 April 2010 1,00,000 2nd April 2020 purchase 50,0...
Understanding Depreciation Accounting for Machinery
When accounting for machinery purchases, the treatment of depreciation is crucial for accurate financial reporting. Below are the two scenarios based on whether a provision for depreciation account is mentioned.
1. When Provision for Depreciation Account is Not Mentioned
- Machinery Purchase Details:
- 1 April 2010: Machinery purchased for 1,00,000
- 2 April 2020: Additional machinery purchased for 50,000
- Depreciation Calculation:
- Life of machinery: 5 years
- Scrap value: 10,000
- Depreciation = (Cost - Scrap Value) / Useful Life
- Depreciation for each purchase:
- For the first machine:
- Depreciation = (1,00,000 - 10,000) / 5 = 18,000 per year
- For the second machine:
- Depreciation = (50,000 - 10,000) / 5 = 8,000 per year
- Total Depreciation:
- Total for both machines = 18,000 + 8,000 = 26,000 per year
2. When Provision for Depreciation Account is Mentioned
- Purpose of Provision for Depreciation Account:
- It records the accumulated depreciation over the life of the asset.
- Journal Entries:
- For each year, the following entry is made:
- Debit: Depreciation Expense Account
- Credit: Provision for Depreciation Account
- Effect on Financial Statements:
- This entry reduces the asset's book value on the balance sheet and reflects the expense on the income statement.
- Accumulated Depreciation:
- Over the life of the asset, the accumulated depreciation will show the total depreciation charged against the machinery.
Conclusion
Both scenarios highlight the importance of recording depreciation accurately. The presence of a provision for depreciation account ensures that the financial statements reflect the true value of assets while also adhering to accounting principles.
When accounting for machinery purchases, the treatment of depreciation is crucial for accurate financial reporting. Below are the two scenarios based on whether a provision for depreciation account is mentioned.
1. When Provision for Depreciation Account is Not Mentioned
- Machinery Purchase Details:
- 1 April 2010: Machinery purchased for 1,00,000
- 2 April 2020: Additional machinery purchased for 50,000
- Depreciation Calculation:
- Life of machinery: 5 years
- Scrap value: 10,000
- Depreciation = (Cost - Scrap Value) / Useful Life
- Depreciation for each purchase:
- For the first machine:
- Depreciation = (1,00,000 - 10,000) / 5 = 18,000 per year
- For the second machine:
- Depreciation = (50,000 - 10,000) / 5 = 8,000 per year
- Total Depreciation:
- Total for both machines = 18,000 + 8,000 = 26,000 per year
2. When Provision for Depreciation Account is Mentioned
- Purpose of Provision for Depreciation Account:
- It records the accumulated depreciation over the life of the asset.
- Journal Entries:
- For each year, the following entry is made:
- Debit: Depreciation Expense Account
- Credit: Provision for Depreciation Account
- Effect on Financial Statements:
- This entry reduces the asset's book value on the balance sheet and reflects the expense on the income statement.
- Accumulated Depreciation:
- Over the life of the asset, the accumulated depreciation will show the total depreciation charged against the machinery.
Conclusion
Both scenarios highlight the importance of recording depreciation accurately. The presence of a provision for depreciation account ensures that the financial statements reflect the true value of assets while also adhering to accounting principles.
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A machine purchased 1 April 2010 1,00,000 2nd April 2020 purchase 50,000 @ depreciation 10% Life = 5year Scrap value = 10,000 Depreciation a/c & machinery a/c 1. When provision for depreciation account is not mentioned 2. When provision for depreciation account is mentioned?
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A machine purchased 1 April 2010 1,00,000 2nd April 2020 purchase 50,000 @ depreciation 10% Life = 5year Scrap value = 10,000 Depreciation a/c & machinery a/c 1. When provision for depreciation account is not mentioned 2. When provision for depreciation account is mentioned? for Class 11 2024 is part of Class 11 preparation. The Question and answers have been prepared according to the Class 11 exam syllabus. Information about A machine purchased 1 April 2010 1,00,000 2nd April 2020 purchase 50,000 @ depreciation 10% Life = 5year Scrap value = 10,000 Depreciation a/c & machinery a/c 1. When provision for depreciation account is not mentioned 2. When provision for depreciation account is mentioned? covers all topics & solutions for Class 11 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A machine purchased 1 April 2010 1,00,000 2nd April 2020 purchase 50,000 @ depreciation 10% Life = 5year Scrap value = 10,000 Depreciation a/c & machinery a/c 1. When provision for depreciation account is not mentioned 2. When provision for depreciation account is mentioned?.
A machine purchased 1 April 2010 1,00,000 2nd April 2020 purchase 50,000 @ depreciation 10% Life = 5year Scrap value = 10,000 Depreciation a/c & machinery a/c 1. When provision for depreciation account is not mentioned 2. When provision for depreciation account is mentioned? for Class 11 2024 is part of Class 11 preparation. The Question and answers have been prepared according to the Class 11 exam syllabus. Information about A machine purchased 1 April 2010 1,00,000 2nd April 2020 purchase 50,000 @ depreciation 10% Life = 5year Scrap value = 10,000 Depreciation a/c & machinery a/c 1. When provision for depreciation account is not mentioned 2. When provision for depreciation account is mentioned? covers all topics & solutions for Class 11 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A machine purchased 1 April 2010 1,00,000 2nd April 2020 purchase 50,000 @ depreciation 10% Life = 5year Scrap value = 10,000 Depreciation a/c & machinery a/c 1. When provision for depreciation account is not mentioned 2. When provision for depreciation account is mentioned?.
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