Illustrations - Depreciation Commerce Notes | EduRev

Crash Course of Accountancy - Class 11

Created by: Nipuns Institute

Commerce : Illustrations - Depreciation Commerce Notes | EduRev

 Page 1


          
                                                       
 
4. It takes a very long time to write an asset down to its break-up value, unless a very high rate is used.  
 
Comparison of straight line and written down value method 
 
 
Illustration 1 
A firm bought a machinery for Rs.1,80,000 on 1st April, 2012 and Rs.20,000 is spent on its installation. Its life was estimated 
to be of 5 years. Its estimated scrap value at the end of the period was Rs.10,000. Find out the amount of annual 
Depreciation and rate of Depreciation and prepare the machinery a/c and depreciation a/c for 4 years.  
Solution:  
Determination of the amount of Depreciation:  
Depreciation = 
Cost — Estimated scrap value 
Number of years of expected useful life 
 
= 
(Rs.1,80,000 + Rs.20,000) — Rs.10,000
5
 = 38,000  
Rate of Depreciation = 
???????????? ???????????????????????? ???????? ???? ?????????? × 100  
   = 
???? .38,000
???? .2,00,000
× 100 = 19% p.a. 
 
Dr. MACHINERY ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2012 
April 1 
April 1 
 
 
To Bank A/c 
To Bank A/c  
 
1,80,000 
20,000 
2013 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38000 
1,62,000 
  2,00,000   2,00,000 
2013 
Apr.1 
 
To Balance b/d 
 
1,62,000 
2014 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38,000 
1,24,000 
  1,62,000   1,42,500 
2014 
Apr.1 
 
To Balance b/d 
 
 
1,24,000 
2015 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38,000 
86,000 
  1,24,000   1,24,000 
2015 
Apr.1 
 
To Balance b/d 
 
86,000 
2016 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38,000 
48,000 
  86,000   86,000 
2016 
Apr.1 
To Balance b/d 48,000    
 
Page 2


          
                                                       
 
4. It takes a very long time to write an asset down to its break-up value, unless a very high rate is used.  
 
Comparison of straight line and written down value method 
 
 
Illustration 1 
A firm bought a machinery for Rs.1,80,000 on 1st April, 2012 and Rs.20,000 is spent on its installation. Its life was estimated 
to be of 5 years. Its estimated scrap value at the end of the period was Rs.10,000. Find out the amount of annual 
Depreciation and rate of Depreciation and prepare the machinery a/c and depreciation a/c for 4 years.  
Solution:  
Determination of the amount of Depreciation:  
Depreciation = 
Cost — Estimated scrap value 
Number of years of expected useful life 
 
= 
(Rs.1,80,000 + Rs.20,000) — Rs.10,000
5
 = 38,000  
Rate of Depreciation = 
???????????? ???????????????????????? ???????? ???? ?????????? × 100  
   = 
???? .38,000
???? .2,00,000
× 100 = 19% p.a. 
 
Dr. MACHINERY ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2012 
April 1 
April 1 
 
 
To Bank A/c 
To Bank A/c  
 
1,80,000 
20,000 
2013 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38000 
1,62,000 
  2,00,000   2,00,000 
2013 
Apr.1 
 
To Balance b/d 
 
1,62,000 
2014 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38,000 
1,24,000 
  1,62,000   1,42,500 
2014 
Apr.1 
 
To Balance b/d 
 
 
1,24,000 
2015 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38,000 
86,000 
  1,24,000   1,24,000 
2015 
Apr.1 
 
To Balance b/d 
 
86,000 
2016 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38,000 
48,000 
  86,000   86,000 
2016 
Apr.1 
To Balance b/d 48,000    
 
          
                                                       
 
Dr. DEPRECIATION ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2013 
Mar.31 
 
To Machinery A/c 
 
38,000 
2013 
Mar.31 
 
By Profit and Loss A/c 
 
38,000 
2014 
Mar.31 
 
To Machinery A/c 
 
38,000 
2014 
Mar.31 
 
By Profit and Loss A/c 
 
38,000 
2015 
Mar.31 
 
To Machinery A/c 
 
38,000 
2015 
Mar.31 
 
By Profit and Loss A/c 
 
38,000 
2016 
Mar.31 
 
To Machinery A/c 
 
38,000 
2016 
Mar.31 
 
By Profit and Loss A/c 
 
38,000 
 
 
Illustration 2 
Raman Bros. purchased a machine on 1st October, 2012 at a cost of Rs.1,40,000 and spent Rs.10,000 on its installation. 
The firm charges Depreciation at 10% p.a. of the original cost every year. The books are closed on 31st March every year. 
Show the Machinery Account and Depreciation Account for three years.  
 
Solution:  
Dr. MACHINERY ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2012 
Oct.1 
Oct.1 
 
To Bank A/c 
To Bank A/c 
—Installation Expenses 
 
1,40,000 
10,000 
2013 
Mar.31 
 
Mar.31 
 
By Depreciation A/c 
(Rs.1,50,000 x 10/100 x 6/12) 
By Balance c/d 
 
7,500 
 
1,42,500 
  1,50,000    
2013 
Apr.1 
 
To Balance b/d 
 
1,42,500 
2014 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
15,000 
1,27,500 
  1,42,500   1,42,500 
2014 
Apr.1 
 
To Balance b/d 
 
 
1,27,500 
2015 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
15,000 
1,12,500 
  1,27,500   1,27,500 
2015 
Apr.1 
 
To Balance b/d 
 
1,12,500 
   
 
Dr. DEPRECIATION ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2013 
Mar.31 
 
To Machinery A/c 
 
7,500 
2013 
Mar.31 
 
By Profit and Loss A/c 
 
7,500 
2014 
Mar.31 
 
To Machinery A/c 
 
15,000 
2014 
Mar.31 
 
By Profit and Loss A/c 
 
15,000 
2015 
Mar.31 
 
To Machinery A/c 
 
15,000 
2015 
Mar.31 
 
By Profit and Loss A/c 
 
15,000 
 
 
Sale of assets 
At the time of sale of assets the following steps are to be carried off- 
Step 1 -  charge depreciation 
Step 2 – by bank ( sale of assets –  bank a/c 
   To assets 
Step 3 – find  profit and loss  
 For loss – by  P& l a/c (credit side) 
 For profit – to P & l  a/c  (debit side) 
 
Illustration 3 ( at a loss)  
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4. It takes a very long time to write an asset down to its break-up value, unless a very high rate is used.  
 
Comparison of straight line and written down value method 
 
 
Illustration 1 
A firm bought a machinery for Rs.1,80,000 on 1st April, 2012 and Rs.20,000 is spent on its installation. Its life was estimated 
to be of 5 years. Its estimated scrap value at the end of the period was Rs.10,000. Find out the amount of annual 
Depreciation and rate of Depreciation and prepare the machinery a/c and depreciation a/c for 4 years.  
Solution:  
Determination of the amount of Depreciation:  
Depreciation = 
Cost — Estimated scrap value 
Number of years of expected useful life 
 
= 
(Rs.1,80,000 + Rs.20,000) — Rs.10,000
5
 = 38,000  
Rate of Depreciation = 
???????????? ???????????????????????? ???????? ???? ?????????? × 100  
   = 
???? .38,000
???? .2,00,000
× 100 = 19% p.a. 
 
Dr. MACHINERY ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2012 
April 1 
April 1 
 
 
To Bank A/c 
To Bank A/c  
 
1,80,000 
20,000 
2013 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38000 
1,62,000 
  2,00,000   2,00,000 
2013 
Apr.1 
 
To Balance b/d 
 
1,62,000 
2014 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38,000 
1,24,000 
  1,62,000   1,42,500 
2014 
Apr.1 
 
To Balance b/d 
 
 
1,24,000 
2015 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38,000 
86,000 
  1,24,000   1,24,000 
2015 
Apr.1 
 
To Balance b/d 
 
86,000 
2016 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38,000 
48,000 
  86,000   86,000 
2016 
Apr.1 
To Balance b/d 48,000    
 
          
                                                       
 
Dr. DEPRECIATION ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2013 
Mar.31 
 
To Machinery A/c 
 
38,000 
2013 
Mar.31 
 
By Profit and Loss A/c 
 
38,000 
2014 
Mar.31 
 
To Machinery A/c 
 
38,000 
2014 
Mar.31 
 
By Profit and Loss A/c 
 
38,000 
2015 
Mar.31 
 
To Machinery A/c 
 
38,000 
2015 
Mar.31 
 
By Profit and Loss A/c 
 
38,000 
2016 
Mar.31 
 
To Machinery A/c 
 
38,000 
2016 
Mar.31 
 
By Profit and Loss A/c 
 
38,000 
 
 
Illustration 2 
Raman Bros. purchased a machine on 1st October, 2012 at a cost of Rs.1,40,000 and spent Rs.10,000 on its installation. 
The firm charges Depreciation at 10% p.a. of the original cost every year. The books are closed on 31st March every year. 
Show the Machinery Account and Depreciation Account for three years.  
 
Solution:  
Dr. MACHINERY ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2012 
Oct.1 
Oct.1 
 
To Bank A/c 
To Bank A/c 
—Installation Expenses 
 
1,40,000 
10,000 
2013 
Mar.31 
 
Mar.31 
 
By Depreciation A/c 
(Rs.1,50,000 x 10/100 x 6/12) 
By Balance c/d 
 
7,500 
 
1,42,500 
  1,50,000    
2013 
Apr.1 
 
To Balance b/d 
 
1,42,500 
2014 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
15,000 
1,27,500 
  1,42,500   1,42,500 
2014 
Apr.1 
 
To Balance b/d 
 
 
1,27,500 
2015 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
15,000 
1,12,500 
  1,27,500   1,27,500 
2015 
Apr.1 
 
To Balance b/d 
 
1,12,500 
   
 
Dr. DEPRECIATION ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2013 
Mar.31 
 
To Machinery A/c 
 
7,500 
2013 
Mar.31 
 
By Profit and Loss A/c 
 
7,500 
2014 
Mar.31 
 
To Machinery A/c 
 
15,000 
2014 
Mar.31 
 
By Profit and Loss A/c 
 
15,000 
2015 
Mar.31 
 
To Machinery A/c 
 
15,000 
2015 
Mar.31 
 
By Profit and Loss A/c 
 
15,000 
 
 
Sale of assets 
At the time of sale of assets the following steps are to be carried off- 
Step 1 -  charge depreciation 
Step 2 – by bank ( sale of assets –  bank a/c 
   To assets 
Step 3 – find  profit and loss  
 For loss – by  P& l a/c (credit side) 
 For profit – to P & l  a/c  (debit side) 
 
Illustration 3 ( at a loss)  
          
                                                       
 
A firm purchased an old truck for a sum of Rs.2,00,000 on 1st April, 2012. It charged depreciation @ 20% per annum 
according to the Straight Line Value Method. The truck was sold on 1st October, 2014 for a sum of Rs.90,000. You are 
required to prepare the Truck Account . 
Solution:  
Working note 
Date  Purchase Sale  Depreciation 
1/4/12 2,00,000  40,000 
1/10/14  90,000  
 
Dr. TRUCK ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2012 
Apr.1 
 
To Bank A/c 
 
2,00,000 
2013 
Mar.31 
Mar.31 
 
By Depreciation A/c  
By Balance c/d 
 
40,000 
1,60,000 
  2,00,000   2,00,000 
2013 
Apr.1 
 
 
To Balance b/d 
 
 
1,60,000 
 
2014 
Mar.31 
Mar.31 
 
By Depreciation A/c  
By Balance c/d 
 
40,000 
1,20,000 
  1,60,000   1,60,000 
2013 
Apr.1 
 
 
To Balance b/d 
 
 
1,20,000 
2014 
Oct.1 
 
Oct.1 
 
 
By Depreciation A/c  
(6 months) 
By Bank a/c  
By P & L a/c ( loss) 
 
20,000 
 
90,000 
10,000 
  1,20,000   1,20,000 
 
Illustration 4 ( at a profit)  
A firm purchased an old truck for a sum of Rs.2,00,000 on 1st April, 2012. It charged depreciation @ 20% per annum 
according to the Written Down Value Method. The truck was sold on 1st October, 2013 for a sum of Rs.1,60,000. You are 
required to prepare the Truck Account for the year ending 31st March, 2013 and 2014.  
Solution:  
 
Working note 
Date  Purchase Sale  Depreciation 
1/4/12 2,00,000  40,000 
1/10/13  1,10,000  
 
Dr. TRUCK ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2012 
Apr.1 
 
To Bank A/c 
 
2,00,000 
2013 
Mar.31 
Mar.31 
 
By Depreciation A/c  
By Balance c/d 
 
40,000 
1,60,000 
  2,00,000   2,00,000 
2013 
Apr.1 
 
Oct.1 
 
To Balance b/d 
 
To Profit and Loss A/c 
—Gain on Sale 
 
1,60,000 
 
16,000 
2013 
Oct.1 
 
Oct.1 
 
By Depreciation A/c  
   (Dep. for 6 months)  
By Bank A/c—Sale Proceeds 
 
16,000 
 
1,60,000 
  1,76,000   1,76,000 
 
When more then one machinery is purchased 
Illustration 5 
A firm purchased on 1st January, 1999 a second-hand machinery for Rs.36,000 and spent Rs.4,000 on its installation.  
On 1st July in the same year, another machinery costing Rs.20,000 was purchased. On 1st July, 2001, machinery brought 
on 1st January, 1999 was sold for Rs.12,000 and a new machine purchased for Rs.64,000 on the same date. Depreciation is 
Page 4


          
                                                       
 
4. It takes a very long time to write an asset down to its break-up value, unless a very high rate is used.  
 
Comparison of straight line and written down value method 
 
 
Illustration 1 
A firm bought a machinery for Rs.1,80,000 on 1st April, 2012 and Rs.20,000 is spent on its installation. Its life was estimated 
to be of 5 years. Its estimated scrap value at the end of the period was Rs.10,000. Find out the amount of annual 
Depreciation and rate of Depreciation and prepare the machinery a/c and depreciation a/c for 4 years.  
Solution:  
Determination of the amount of Depreciation:  
Depreciation = 
Cost — Estimated scrap value 
Number of years of expected useful life 
 
= 
(Rs.1,80,000 + Rs.20,000) — Rs.10,000
5
 = 38,000  
Rate of Depreciation = 
???????????? ???????????????????????? ???????? ???? ?????????? × 100  
   = 
???? .38,000
???? .2,00,000
× 100 = 19% p.a. 
 
Dr. MACHINERY ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2012 
April 1 
April 1 
 
 
To Bank A/c 
To Bank A/c  
 
1,80,000 
20,000 
2013 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38000 
1,62,000 
  2,00,000   2,00,000 
2013 
Apr.1 
 
To Balance b/d 
 
1,62,000 
2014 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38,000 
1,24,000 
  1,62,000   1,42,500 
2014 
Apr.1 
 
To Balance b/d 
 
 
1,24,000 
2015 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38,000 
86,000 
  1,24,000   1,24,000 
2015 
Apr.1 
 
To Balance b/d 
 
86,000 
2016 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38,000 
48,000 
  86,000   86,000 
2016 
Apr.1 
To Balance b/d 48,000    
 
          
                                                       
 
Dr. DEPRECIATION ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2013 
Mar.31 
 
To Machinery A/c 
 
38,000 
2013 
Mar.31 
 
By Profit and Loss A/c 
 
38,000 
2014 
Mar.31 
 
To Machinery A/c 
 
38,000 
2014 
Mar.31 
 
By Profit and Loss A/c 
 
38,000 
2015 
Mar.31 
 
To Machinery A/c 
 
38,000 
2015 
Mar.31 
 
By Profit and Loss A/c 
 
38,000 
2016 
Mar.31 
 
To Machinery A/c 
 
38,000 
2016 
Mar.31 
 
By Profit and Loss A/c 
 
38,000 
 
 
Illustration 2 
Raman Bros. purchased a machine on 1st October, 2012 at a cost of Rs.1,40,000 and spent Rs.10,000 on its installation. 
The firm charges Depreciation at 10% p.a. of the original cost every year. The books are closed on 31st March every year. 
Show the Machinery Account and Depreciation Account for three years.  
 
Solution:  
Dr. MACHINERY ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2012 
Oct.1 
Oct.1 
 
To Bank A/c 
To Bank A/c 
—Installation Expenses 
 
1,40,000 
10,000 
2013 
Mar.31 
 
Mar.31 
 
By Depreciation A/c 
(Rs.1,50,000 x 10/100 x 6/12) 
By Balance c/d 
 
7,500 
 
1,42,500 
  1,50,000    
2013 
Apr.1 
 
To Balance b/d 
 
1,42,500 
2014 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
15,000 
1,27,500 
  1,42,500   1,42,500 
2014 
Apr.1 
 
To Balance b/d 
 
 
1,27,500 
2015 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
15,000 
1,12,500 
  1,27,500   1,27,500 
2015 
Apr.1 
 
To Balance b/d 
 
1,12,500 
   
 
Dr. DEPRECIATION ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2013 
Mar.31 
 
To Machinery A/c 
 
7,500 
2013 
Mar.31 
 
By Profit and Loss A/c 
 
7,500 
2014 
Mar.31 
 
To Machinery A/c 
 
15,000 
2014 
Mar.31 
 
By Profit and Loss A/c 
 
15,000 
2015 
Mar.31 
 
To Machinery A/c 
 
15,000 
2015 
Mar.31 
 
By Profit and Loss A/c 
 
15,000 
 
 
Sale of assets 
At the time of sale of assets the following steps are to be carried off- 
Step 1 -  charge depreciation 
Step 2 – by bank ( sale of assets –  bank a/c 
   To assets 
Step 3 – find  profit and loss  
 For loss – by  P& l a/c (credit side) 
 For profit – to P & l  a/c  (debit side) 
 
Illustration 3 ( at a loss)  
          
                                                       
 
A firm purchased an old truck for a sum of Rs.2,00,000 on 1st April, 2012. It charged depreciation @ 20% per annum 
according to the Straight Line Value Method. The truck was sold on 1st October, 2014 for a sum of Rs.90,000. You are 
required to prepare the Truck Account . 
Solution:  
Working note 
Date  Purchase Sale  Depreciation 
1/4/12 2,00,000  40,000 
1/10/14  90,000  
 
Dr. TRUCK ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2012 
Apr.1 
 
To Bank A/c 
 
2,00,000 
2013 
Mar.31 
Mar.31 
 
By Depreciation A/c  
By Balance c/d 
 
40,000 
1,60,000 
  2,00,000   2,00,000 
2013 
Apr.1 
 
 
To Balance b/d 
 
 
1,60,000 
 
2014 
Mar.31 
Mar.31 
 
By Depreciation A/c  
By Balance c/d 
 
40,000 
1,20,000 
  1,60,000   1,60,000 
2013 
Apr.1 
 
 
To Balance b/d 
 
 
1,20,000 
2014 
Oct.1 
 
Oct.1 
 
 
By Depreciation A/c  
(6 months) 
By Bank a/c  
By P & L a/c ( loss) 
 
20,000 
 
90,000 
10,000 
  1,20,000   1,20,000 
 
Illustration 4 ( at a profit)  
A firm purchased an old truck for a sum of Rs.2,00,000 on 1st April, 2012. It charged depreciation @ 20% per annum 
according to the Written Down Value Method. The truck was sold on 1st October, 2013 for a sum of Rs.1,60,000. You are 
required to prepare the Truck Account for the year ending 31st March, 2013 and 2014.  
Solution:  
 
Working note 
Date  Purchase Sale  Depreciation 
1/4/12 2,00,000  40,000 
1/10/13  1,10,000  
 
Dr. TRUCK ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2012 
Apr.1 
 
To Bank A/c 
 
2,00,000 
2013 
Mar.31 
Mar.31 
 
By Depreciation A/c  
By Balance c/d 
 
40,000 
1,60,000 
  2,00,000   2,00,000 
2013 
Apr.1 
 
Oct.1 
 
To Balance b/d 
 
To Profit and Loss A/c 
—Gain on Sale 
 
1,60,000 
 
16,000 
2013 
Oct.1 
 
Oct.1 
 
By Depreciation A/c  
   (Dep. for 6 months)  
By Bank A/c—Sale Proceeds 
 
16,000 
 
1,60,000 
  1,76,000   1,76,000 
 
When more then one machinery is purchased 
Illustration 5 
A firm purchased on 1st January, 1999 a second-hand machinery for Rs.36,000 and spent Rs.4,000 on its installation.  
On 1st July in the same year, another machinery costing Rs.20,000 was purchased. On 1st July, 2001, machinery brought 
on 1st January, 1999 was sold for Rs.12,000 and a new machine purchased for Rs.64,000 on the same date. Depreciation is 
          
                                                       
 
provided annually on 31st December @ 10% p.a. on the Written Down Value Method. Show the Machinery Account from 
1999 to 2001.  
  
Solution:  
Working note 
Date  Purchase Sale  Depreciation 
1/1/99 40,000  4,000 
1/7/99 20,000  2,000 * 
1/7/01  12000 (1)  
1/07/01 64,000  64,00 * 
 
Dr. MACHINERY ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
1999  
Jan.1 
 
Jul.1 
 
To Bank A/c (Mach. I)  
(Rs.36,000 + Rs.4,000)  
To Bank A/c (Mach. II) 
 
40,000 
 
20,000 
1999 
Dec.31 
 
 
Dec.31 
 
By Depreciation A/c:  
   Mach. I  4,000  
   Mach. II   1,000  
By Balance c/d:  
   Mach. I  
   (Rs.40,000 – Rs.4,000)  
   Mach. II  
   (Rs.20,000 – Rs.1,000) 
 
 
 
5,000 
 
36,000 
 
19,000 
  60,000   60,000 
2000 
Jan.1 
 
To Balance b/d:  
   Mach. I  
   Mach. II 
 
 
36,000 
19,000 
 
2000 
Dec.31 
 
 
Dec.31 
 
By Depreciation A/c:  
   Mach. I  3,600  
   Mach. II   1,900  
By Balance c/d:  
   Mach. I  
   (Rs.36,000 – Rs.3,600)  
   Mach. II  
   (Rs.19,000 – Rs.1,900) 
 
 
 
5,500 
 
32,400 
 
17,100 
  55,000   55,000 
2000 
Jan.1 
 
 
Jul.1 
 
To Balance b/d:  
   Mach. I  
   Mach. II 
To Bank A/c (Mach. III) 
 
 
32,400 
17,100 
64,000 
2001 
Jul.1 
 
 
 
Dec.31 
 
By Depreciation A/c: (Mach.I)  
By Bank A/c  
By Profit and Loss A/c (Loss)  
  Rs.(32,400 -1,620 -12,000)  
By Depreciation A/c:  
   Mach. II  1,710  
   Mach. III  3,200  
By Balance c/d:  
   Mach. II  
   (Rs.17,100 – Rs.1,710)  
   Mach. III  
   (Rs.64,000 – Rs.3,200) 
 
1,620 
12,000 
18,780 
 
 
 
4,910 
 
15,390 
 
60,800 
  1,13,500   1,13,500 
2002 
Jan.1 
 
To Balance b/d:  
   (Mach. II)  
   (Mach. III) 
 
 
15,390 
60,800 
   
When a part of machinery is sold 
Illustration 5 
On 1
st
 July 2011, Ashoka  Ltd. purchased machinery worth Rs. 40,000. On 1
st
 July 2013, it buys additional machinery worth 
Rs. 10,000. On 30
th 
June 2014, half of the machinery purchased on 1
st
 July 2011, is sold for Rs. 8,200. The company writes 
off depreciation @10% p.a. on the original cost. The Accounts are closed every year on 31
st
 December. Prepare the 
Machinery Account for 3 years. 
Page 5


          
                                                       
 
4. It takes a very long time to write an asset down to its break-up value, unless a very high rate is used.  
 
Comparison of straight line and written down value method 
 
 
Illustration 1 
A firm bought a machinery for Rs.1,80,000 on 1st April, 2012 and Rs.20,000 is spent on its installation. Its life was estimated 
to be of 5 years. Its estimated scrap value at the end of the period was Rs.10,000. Find out the amount of annual 
Depreciation and rate of Depreciation and prepare the machinery a/c and depreciation a/c for 4 years.  
Solution:  
Determination of the amount of Depreciation:  
Depreciation = 
Cost — Estimated scrap value 
Number of years of expected useful life 
 
= 
(Rs.1,80,000 + Rs.20,000) — Rs.10,000
5
 = 38,000  
Rate of Depreciation = 
???????????? ???????????????????????? ???????? ???? ?????????? × 100  
   = 
???? .38,000
???? .2,00,000
× 100 = 19% p.a. 
 
Dr. MACHINERY ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2012 
April 1 
April 1 
 
 
To Bank A/c 
To Bank A/c  
 
1,80,000 
20,000 
2013 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38000 
1,62,000 
  2,00,000   2,00,000 
2013 
Apr.1 
 
To Balance b/d 
 
1,62,000 
2014 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38,000 
1,24,000 
  1,62,000   1,42,500 
2014 
Apr.1 
 
To Balance b/d 
 
 
1,24,000 
2015 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38,000 
86,000 
  1,24,000   1,24,000 
2015 
Apr.1 
 
To Balance b/d 
 
86,000 
2016 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
38,000 
48,000 
  86,000   86,000 
2016 
Apr.1 
To Balance b/d 48,000    
 
          
                                                       
 
Dr. DEPRECIATION ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2013 
Mar.31 
 
To Machinery A/c 
 
38,000 
2013 
Mar.31 
 
By Profit and Loss A/c 
 
38,000 
2014 
Mar.31 
 
To Machinery A/c 
 
38,000 
2014 
Mar.31 
 
By Profit and Loss A/c 
 
38,000 
2015 
Mar.31 
 
To Machinery A/c 
 
38,000 
2015 
Mar.31 
 
By Profit and Loss A/c 
 
38,000 
2016 
Mar.31 
 
To Machinery A/c 
 
38,000 
2016 
Mar.31 
 
By Profit and Loss A/c 
 
38,000 
 
 
Illustration 2 
Raman Bros. purchased a machine on 1st October, 2012 at a cost of Rs.1,40,000 and spent Rs.10,000 on its installation. 
The firm charges Depreciation at 10% p.a. of the original cost every year. The books are closed on 31st March every year. 
Show the Machinery Account and Depreciation Account for three years.  
 
Solution:  
Dr. MACHINERY ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2012 
Oct.1 
Oct.1 
 
To Bank A/c 
To Bank A/c 
—Installation Expenses 
 
1,40,000 
10,000 
2013 
Mar.31 
 
Mar.31 
 
By Depreciation A/c 
(Rs.1,50,000 x 10/100 x 6/12) 
By Balance c/d 
 
7,500 
 
1,42,500 
  1,50,000    
2013 
Apr.1 
 
To Balance b/d 
 
1,42,500 
2014 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
15,000 
1,27,500 
  1,42,500   1,42,500 
2014 
Apr.1 
 
To Balance b/d 
 
 
1,27,500 
2015 
Mar.31 
Mar.31 
 
By Depreciation A/c 
By Balance c/d 
 
15,000 
1,12,500 
  1,27,500   1,27,500 
2015 
Apr.1 
 
To Balance b/d 
 
1,12,500 
   
 
Dr. DEPRECIATION ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2013 
Mar.31 
 
To Machinery A/c 
 
7,500 
2013 
Mar.31 
 
By Profit and Loss A/c 
 
7,500 
2014 
Mar.31 
 
To Machinery A/c 
 
15,000 
2014 
Mar.31 
 
By Profit and Loss A/c 
 
15,000 
2015 
Mar.31 
 
To Machinery A/c 
 
15,000 
2015 
Mar.31 
 
By Profit and Loss A/c 
 
15,000 
 
 
Sale of assets 
At the time of sale of assets the following steps are to be carried off- 
Step 1 -  charge depreciation 
Step 2 – by bank ( sale of assets –  bank a/c 
   To assets 
Step 3 – find  profit and loss  
 For loss – by  P& l a/c (credit side) 
 For profit – to P & l  a/c  (debit side) 
 
Illustration 3 ( at a loss)  
          
                                                       
 
A firm purchased an old truck for a sum of Rs.2,00,000 on 1st April, 2012. It charged depreciation @ 20% per annum 
according to the Straight Line Value Method. The truck was sold on 1st October, 2014 for a sum of Rs.90,000. You are 
required to prepare the Truck Account . 
Solution:  
Working note 
Date  Purchase Sale  Depreciation 
1/4/12 2,00,000  40,000 
1/10/14  90,000  
 
Dr. TRUCK ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2012 
Apr.1 
 
To Bank A/c 
 
2,00,000 
2013 
Mar.31 
Mar.31 
 
By Depreciation A/c  
By Balance c/d 
 
40,000 
1,60,000 
  2,00,000   2,00,000 
2013 
Apr.1 
 
 
To Balance b/d 
 
 
1,60,000 
 
2014 
Mar.31 
Mar.31 
 
By Depreciation A/c  
By Balance c/d 
 
40,000 
1,20,000 
  1,60,000   1,60,000 
2013 
Apr.1 
 
 
To Balance b/d 
 
 
1,20,000 
2014 
Oct.1 
 
Oct.1 
 
 
By Depreciation A/c  
(6 months) 
By Bank a/c  
By P & L a/c ( loss) 
 
20,000 
 
90,000 
10,000 
  1,20,000   1,20,000 
 
Illustration 4 ( at a profit)  
A firm purchased an old truck for a sum of Rs.2,00,000 on 1st April, 2012. It charged depreciation @ 20% per annum 
according to the Written Down Value Method. The truck was sold on 1st October, 2013 for a sum of Rs.1,60,000. You are 
required to prepare the Truck Account for the year ending 31st March, 2013 and 2014.  
Solution:  
 
Working note 
Date  Purchase Sale  Depreciation 
1/4/12 2,00,000  40,000 
1/10/13  1,10,000  
 
Dr. TRUCK ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
2012 
Apr.1 
 
To Bank A/c 
 
2,00,000 
2013 
Mar.31 
Mar.31 
 
By Depreciation A/c  
By Balance c/d 
 
40,000 
1,60,000 
  2,00,000   2,00,000 
2013 
Apr.1 
 
Oct.1 
 
To Balance b/d 
 
To Profit and Loss A/c 
—Gain on Sale 
 
1,60,000 
 
16,000 
2013 
Oct.1 
 
Oct.1 
 
By Depreciation A/c  
   (Dep. for 6 months)  
By Bank A/c—Sale Proceeds 
 
16,000 
 
1,60,000 
  1,76,000   1,76,000 
 
When more then one machinery is purchased 
Illustration 5 
A firm purchased on 1st January, 1999 a second-hand machinery for Rs.36,000 and spent Rs.4,000 on its installation.  
On 1st July in the same year, another machinery costing Rs.20,000 was purchased. On 1st July, 2001, machinery brought 
on 1st January, 1999 was sold for Rs.12,000 and a new machine purchased for Rs.64,000 on the same date. Depreciation is 
          
                                                       
 
provided annually on 31st December @ 10% p.a. on the Written Down Value Method. Show the Machinery Account from 
1999 to 2001.  
  
Solution:  
Working note 
Date  Purchase Sale  Depreciation 
1/1/99 40,000  4,000 
1/7/99 20,000  2,000 * 
1/7/01  12000 (1)  
1/07/01 64,000  64,00 * 
 
Dr. MACHINERY ACCOUNT  Cr. 
Date Particulars Rs. Date Particulars Rs. 
1999  
Jan.1 
 
Jul.1 
 
To Bank A/c (Mach. I)  
(Rs.36,000 + Rs.4,000)  
To Bank A/c (Mach. II) 
 
40,000 
 
20,000 
1999 
Dec.31 
 
 
Dec.31 
 
By Depreciation A/c:  
   Mach. I  4,000  
   Mach. II   1,000  
By Balance c/d:  
   Mach. I  
   (Rs.40,000 – Rs.4,000)  
   Mach. II  
   (Rs.20,000 – Rs.1,000) 
 
 
 
5,000 
 
36,000 
 
19,000 
  60,000   60,000 
2000 
Jan.1 
 
To Balance b/d:  
   Mach. I  
   Mach. II 
 
 
36,000 
19,000 
 
2000 
Dec.31 
 
 
Dec.31 
 
By Depreciation A/c:  
   Mach. I  3,600  
   Mach. II   1,900  
By Balance c/d:  
   Mach. I  
   (Rs.36,000 – Rs.3,600)  
   Mach. II  
   (Rs.19,000 – Rs.1,900) 
 
 
 
5,500 
 
32,400 
 
17,100 
  55,000   55,000 
2000 
Jan.1 
 
 
Jul.1 
 
To Balance b/d:  
   Mach. I  
   Mach. II 
To Bank A/c (Mach. III) 
 
 
32,400 
17,100 
64,000 
2001 
Jul.1 
 
 
 
Dec.31 
 
By Depreciation A/c: (Mach.I)  
By Bank A/c  
By Profit and Loss A/c (Loss)  
  Rs.(32,400 -1,620 -12,000)  
By Depreciation A/c:  
   Mach. II  1,710  
   Mach. III  3,200  
By Balance c/d:  
   Mach. II  
   (Rs.17,100 – Rs.1,710)  
   Mach. III  
   (Rs.64,000 – Rs.3,200) 
 
1,620 
12,000 
18,780 
 
 
 
4,910 
 
15,390 
 
60,800 
  1,13,500   1,13,500 
2002 
Jan.1 
 
To Balance b/d:  
   (Mach. II)  
   (Mach. III) 
 
 
15,390 
60,800 
   
When a part of machinery is sold 
Illustration 5 
On 1
st
 July 2011, Ashoka  Ltd. purchased machinery worth Rs. 40,000. On 1
st
 July 2013, it buys additional machinery worth 
Rs. 10,000. On 30
th 
June 2014, half of the machinery purchased on 1
st
 July 2011, is sold for Rs. 8,200. The company writes 
off depreciation @10% p.a. on the original cost. The Accounts are closed every year on 31
st
 December. Prepare the 
Machinery Account for 3 years. 
          
                                                       
 
Solution:  
Working note 
 
 
Dr. MACHINERY ACCOUNT  Cr. 
Date Particulars Amt. (Rs.) Date Particulars Amt, (Rs.) 
01.07.11 To Bank A/c 1 (a) 
                      1 (b) 
20,000 
20,000 
31.12.11 By Depreciation A/c 1 (a) 
                                    1 (b) 
(20,000 x 6/12 x 10/100) 
1,000 
1,000 
    By Balance c/d          1 (a) 
                                    1 (b) 
19,000 
19,000 
  40,000   40,000 
01.01.12 To Balance b/d  1 (a) 
                           1 (b) 
19,000 
19,000. 
31.12.12 By Depreciation A/c 1 (a) 
                                    1 (b) 
 
2,000 
2,000 
   31.12.12 By Balance c/d          1 (a) 
                                    1 (b) 
 
17,000 
17,000 
  38,000   38,000 
01.01.13 To Balance b/d           1 (a) 
                                    1 (b) 
 
17,000 
17,000 
31.12.13 By Depreciation A/c 1 (a) 
                                    1 (b) 
                                    2 
2,000 
2,000 
500 
01.07.13 To Bank A/c                  2 10,000 31.12.13 By Balance c/d          1 (a) 
                                    1 (b) 
                                    2 
15,000 
15,000 
9,500 
  44,000   44,000 
01.01.14 To Balance b/d          1 (a) 
                                    1 (b) 
                                    2 
15,000 
15,000 
9,500 
30.06.14 By Depreciation A/c     1 (a) 
By Bank A/c 
 By Profit and Loss A/c (Loss) 
1,000 
8,200 
5,800 
   31.12.14 By Depreciation A/c     1 (b) 
                                           2 
2,000 
1,000 
   31.12.14 By Balance c/d            1 (b) 
                                           2 
13,000 
8,500 
  39,500   39,500 
01.01.15 To Balance b/d           1 (b) 
                                          2 
13,000 
8,500 
   
 
Illustration 6 
Star Ltd. purchased 10 trucks at Rs. 5,40,000 each on 1
st
 July, 2011. On 1
st
 January, 2014, one of the truck is involved in an 
accident and is completely destroyed, A sum of Rs. 3,24,000 is received from the Insurance Company in full settlement. On 
the same date, another truck is purchased by the company for a sum of Rs. 6,00,000. The company writes off depreciation 
@ 20% p.a. on the written down value method  and closes its books every year on 31
st
 March. Give the Trucks Account for 
3 years ending 31
st
 March, 2014. 
Solution:  
Working note 
 
 
Dr. Truck account  Cr. 
Date  Purchase Sale  Depreciation 
1/7/11 20,000  2,000 *  
1/7/11 20,000  2,000 * 
1/7/13 10,000  1,000 * 
30/06/14  8,200  
Date  Purchase Sale  Depreciation 
1/7/11 5,40,000  1,08,000 * 
1/7/11 5,40,000 * 9 = 48,60,000  9,72,000 
1/1/14  3,24,000  
1/1/14 6,00,000  1,20,000 
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