On 1st July 1990, a company purchased a machine for rupees 20000. After that, on 1st January 1991, the second machine was purchased for rupees 12000. On 1st April 1992, the first machine purchased on 1st July 1990 was sold for rupees 16500 and a new machine was purchased on the same day for rupees 10000. Prepare Machinery Account for three years after providing depreciation by Reducing the Balance Method to 10 percent per annum.
Solution:
Machinery Account Depreciation by Reducing the Balance Method at 10% per annum
Date
Particulars
Amount (₹)
Date
Particulars
Amount (₹)
1990
1990
1st July
To Bank (Purchased)
20,000
31st Dec
By Depreciation (10%)
1,000
1991
1991
1st Jan
To Bank (Purchased)
12,000
31st Dec
By Depreciation (10% on 20,000)
2,000
31st Dec
By Depreciation (10% on 12,000)
1,200
1992
1992
1st April
By Bank (Sale- 1st machine)
16,500
1st April
By Depreciation (10% on 20,000 for 3M)
500
1st April
To Bank (Purchased)
10,000
31st Dec
By Depreciation (10% on 9,000)
900
31st Dec
By Depreciation (10% on 12,000)
1,080
31st Dec
By Depreciation (10% on 10,000) for 9M
750
Depreciation Summary:
1990: ₹1,000 (10% on ₹20,000 for 6 months)
1991: ₹3,200 (10% on ₹20,000 + 10% on ₹12,000)
1992: ₹3,230
The final balance in the Machinery Account includes the original values minus the depreciation calculated each year using the Reducing Balance Method.
Question 2:
On 1st January 2018, a company purchased a machine for $15,000. On 1st July 2020, the machine was sold for $7,000. Prepare the Machinery Account for 2018, 2019, and 2020 after providing depreciation by the Straight-Line Method at 15 percent per annum.
Solution:
Machinery Account Depreciation by Straight-Line Method at 15% per annum
Date
Particulars
Amount ($)
2018
1st Jan
To Bank (Purchased)
15,000
31st Dec
By Depreciation (15%)
2,250
2019
31st Dec
By Depreciation (15%)
2,250
2020
1st July
By Bank (Sale)
7,000
1st July
By Depreciation (6M of 15%)
1,125
Depreciation Summary:
2018: $2,250 (15% on $15,000)
2019: $2,250 (15% on $15,000)
2020: $1,125 (15% on $15,000 for 6 months)
The amount recovered from the sale is entered into the Machinery Account, and depreciation is calculated each year on a straight-line basis.
Question 3:
On 1st February 2017, a business purchased machinery for €20,000. On 1st February 2018, additional machinery was bought for €10,000. On 1st October 2019, the first machine was sold for €12,000. Prepare the Machinery Account for 2017, 2018, and 2019 after providing 10 percent per annum depreciation using the Reducing Balance Method.
Solution:
Machinery Account Depreciation by Reducing the Balance Method at 10% per annum
Date
Particulars
Amount (€)
2017
1st Feb
To Bank (Purchased)
20,000
31st Dec
By Depreciation (10% on €20,000)
1,833.33
2018
1st Feb
To Bank (Purchased)
10,000
31st Dec
By Depreciation (10% on €18,166.67)
1,816.67
By Depreciation (10% on €10,000)
1,000
2019
1st Oct
By Bank (Sale – 1st machine)
12,000
1st Oct
By Depreciation (10% on €18,166.67) for 9 months
1,362.50
31st Dec
By Depreciation (10% on €10,000)
1,000
Depreciation Summary:
2017: €1,833.33 (10% on €20,000 for 11 months)
2018: €2,816.67 (10% on €18,166.67 + 10% on €10,000)
2019: €2,362.50 (10% on €18,166.67 for 9 months + 10% on €10,000)
These entries show the annual depreciation and the balance after accounting for the sale of the machine.
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