ACCOUNTING FOR DEPRECIATION 229

_____________-:
II, The residutedalvalued useful life of an asset is :
(AJ estiina (B) actual (D) None of these
n fixed Instalment Method depreciation . ul (C) calculated
'1, I l is ca1c ated on .
(A) Opening ba ance (B) Closing bal . (D) None of these
In I)iroinishing Balance Method depreciation 18 . acalnce (C) Original cost
s. (A) Opening balan.c e (B) Written down value
culated on ·
(C). Market value (D) None of these
JI. 'fhe foll~~ Stt,lteme:nts are 'True'or 'False': • :>
l, l)epreciat1on IS an amortised expenditure.
Reducing Balance Method of Depreciation is r,0 uowed to have a uniform charge for depreciation, repairs and
2· !llaintenance.

S. J>roVi.dingf ldep:iatio~ inti the accounts reduced the amount of profit available for dividend.
In case o. oss,. epreCia on can not be provided in a fin anCia . 1 year.
4•
5, There eXISts _d ifference the Written Down Value Method and Diminishing Balance Method of depreciation.
The expression. depreciation 1s to be charged at 10'¼ and l0"' 70 p.a. carry t h e same meaning.
·
6. . .
7. Higher depreciation will not affect cash profit of the business.
S. There is no difference between Written Down Value Method and Diminishing Balance Method of depreciation.
9, 1,and is also a depreciable asset.
10. Depreciation is a cash expenditure like other normal expenses.
11. Depreciation is a process of allocation of the cost of the fixed asset.
12. Depreciation amount refers to the difference between historical cost and market value of an asset.
13, Providing depreciation ensures sufficient cash for replacement of asset.
14. In case of Diminishing Balance Method, the asset gets reduced to zero.
15. Fixed Instalment Method of depreciation is most suitable for small firms.
C:::::::~ - . . . . ~:· ,, ..
I. 1. (A), 2. (A), 3. (A), 4. (C), 5 . (C), 6. (A), 7. (C), 8. (B).
II. 7rue : 1, 2, 3, 7, 8, 11, 13, 15; False : 4, 5, 6, 9, 10, 12, 14.
C:::::::C8 P~C'.f!{JA.p.&Q~STION~ ·
Fix~ instalment Metho_cl_
.f
>
1. Verma Traders bought a machinery on 1st April, 2018 for f 11,900 and spent f 1,500 on its establishment. The
estimated life of the machine is five years. After which its residual value is estimated f 1,400.
Calculate annual depreciation according to Fixed Instalment Method and prepare Machine Account for first
three years.
Ans. Depreciation f 2,400 p.a., Bal. of Machinery account at the end of third year f 6,200.
2. Nayak Printers purchased on 1st April, 2019 a machine for f 1,00,000. On 1st October in the same year, second
machine costing f 50,000 was purchased.
Depreciation was provided on 31st March annually at 10% per annum by Fixed Instalment Method. COST and
SGST are charged @ 6%.
Give the Machinery Account for 2019-20 and 2020-21.
Ans. Depreciation f 15,000 p.a ., Balance of Machinery Account at the end of 2nd year f 1,22,500,
Dep. for 2019-20 = f 10,000 (1,00,000 x 1
1
io)+ 1
io
f 2,500(50,000 x 1 x :2)=f 12,500
3. Maheswari Steel Company purchased a machinery on 1st April, 2017 f?r f 20,000. On 1st April, 2018 a second
machinery was purchased for f 8,000 and f 400 were met as establIShment charges. The third and fourth
machines were also purchased on let Oct., 2019 for f 6,000 and on 30th June, 2020 for f 10,000 respectively.
Prepare a Machinery Ale for 4 years by using fixed instalment method@ 5% per annum.
Ans. Dep. 2017-18 f 1,000, 2018-19 f 1,420, 2019-20 f 1,570, 2020-21 f 2,095, Balance of Machinery account as
on 31.3.2021 f 38,315.
4. On 1st April, 2018 a trader purchased a machine for f 25,000. Its working life is 10 years and its residual value is
estimated f 1,000 after the expiry of this period. On 1st April, 2019 and 1st D_ct·• 2020 some more machines were added
for f 4,000 <Residual value f 200) and f 2,000 (Residual value f 100) respectively. On these the depreciation is charged
@ 10% p.a. on Fixed Instalment Method, Prepare Machinery Account for the first three years.

Ans. Balance of Machinery Ale f 22,945.00.

Note : Before calculating the depreciation the residual value is deducted and the depreciation would be : 1st year
f 2,400.00, 2nd year f 2,780.00, 3rd year f 2,875.00.
230 FINANCIAL ACCOUNTING
5 • The Speed Transport Company purchased a motor truck for 'f 30,000 on 1st April, 2015 · On July 1 , 2015 another
truck was purchased for f 12,000. On 1st Oct., 2017 the truck purchased on April l, 2015 was sold for? 12,00o
and a new truck was purchased for f 26,000 on tlie same date. On Aug. 1, 2018 the ~ompany exchanged, the
latest purchased truck for a new truck with the same vendor. The exchange agreement mcluded the adjustment
off 20,000 for the truck returned and payment off 10,000 iii cash. The paymen~ was made on ~th Aug., 2018.
The company further purchased-a new truck for f 31;500 on 1st Oct., 2019. This ~ck met With accident on
Dec. 1, 2020 and got completely wrecked. The company received f 20,000 from the msurance company in full
satisfaction of the claim on Dec. 28, 2020. The books are closed on 31st March each year and the company
charges depreciation 20% p.a. according to the fixed instalment method. Prepare Motor Truck Account.
Ans. On 31.3.2021 Balance of Motor Truck Ale f 14,000.
Loss on sale of truck on 1-10-2017 f 3,000, Loss truck installed on 1st Aug., 2018 f 1,667.
Loss on truck damaged on 1-12-2020 f 4,150, Depreciation in 2015-16---6,000 + 1,800 = f 7,800. Dep. in
2016-1 H 8,400, Dep. in 2017-18------f 3,000 + 2,400 + 2,600 =f 8,000, Dep. in2018-19----1,733 + 2,400 + 4,000
=8,133, Dep. in 2019-20-2,400 + 6,000 + 3,150 =11,550, Dep. in 2020-21-4,200 + 600 + 6,000 =f 10,800.
Note: f 600 will be written off being opening Bal. for truck purchased on 1-4-2015.
6. On July 1, 2017 Gopal Ltd. purchased second-hand machinery for f 20,000 and spent f 3,000 on re-conditioning
and installing it. On January 1, 2018 the firm purchased new machinery worth f 12,000. <?°
June 30, 2019 the
machinery purchased on January 1, 2018 was sold for f 8,000. On July 1, 2019 fresh machmery was purchased
on instalment basis, payment for this machinery was to be made as follows:
July 1, 2019 f 5 000
June 30, 2020 f 6:000
June 30, 2021 f 5 500
Payments in 2020-21 and 2021-22 include interest f 1,000 and f 500 respectively.
The Company writes-off depreciation@ 10% p.a. on original cost. The accounts are closed every year on 31st
March. Show the Machinery Account for three years ending 31st March, 2020.
Ans. Balance of Machinery Ale on 31.3.2020 f 30,550.
Loss on Machine sold on 30th June, 2019----f 2,200; Dep. of first year f 1,725 + 300 = f 2,025; Dep. of second
year f 2,300 + 1,200 =f 3,500; Dep. of third year f 2,300 + 300 + 1,125 =f 3,725
Note : The Cash price of machine purchased on 1st July, 2019 will be f (5,000 + 6,000 + 5,500) - (1,000 + 500) =
fIB~OO .
7. The following information is available from the record of Susheel Ltd. in respect of Motor vehicles used by it in
its business:
Vehicle No. 1 was purchased for f 20,000 on 1st April, 2015. 'it was sold for f 2,000 on 1st Oct., 2018. Vehicle
No. 2 was purchased on 1st Oct., 2015 f 18,000. Vehicle No. 3 was purchased on 1st April, 20-17 for f 12,000. It
was exchanged for new vehicle No. 5 on 1st April, 2019. The cash price of Vehicle No. 5 was f 10,000 on that
date. Vehicle No. 4 was purchased on 1st Oct., 2017 for f 10,500. On 1st Oct., 2020 this vehicle met with an
accident and was sold as a junk for f 250. The company also received f 1,500 from the insurance.company in
full satisfaction of its claim. The company maintains consolidated account in its book for all the vehicles. You
are required to write up the Motor Vehicles Account for the year 2015-16 to 2020-21. Depreciation is written off
at the rate of 20% per annum on original cost. When a vehicle has been used for a part of the year, depreciation
is calculated in proportion to such part only. The accounts are closed every year on 31st March.
Ans. Profit on vehicle exchange, f 2,800; Balance of Motor Vehicles Ale in 2020-21 f 6,000; Transfer to Statement
of P. & L. in 2018-19 f 4,000; in 2020-21 f 2,450.
Diminishing B'a lance Method "
8. A Machine was purchased for f 50,000. Its estimated life is 5 years, at the end of which its residual value is
estimated to be f 16,384. Calculate the depreciation rate on diminishing balance method.
Ans.20%
9. On 1st April, 2018, Mis J. K. and Sons, purchased a machine for f 10,000 whose life is 10 years only. They
decided to depreciate the assets at 12.5% per annum on diminishing balance method, you are required to prepare
the machine Ale for the first three years only. The accounts are closed every year on 31st March.
Ans. Balance of Machinery Ale on 31.3.2021 f 6,699.22 ·
10. Following information are availed from 'Kevi Ltd.' Prepare a 'Machinery Account' for the year ended on 2019-20
upto 2020-21 :
(i) Machinery purchased for f 80,000 on 1st Jan., 2019.
(ii) Machinery purchased for f 36,000 on 1st Aug., 2019.
(iii) Machinery purchased for f 30,000 on 1st Feb., 2021.
From Company Depreciation on Diminishing balance method is to be written off ann ally at 10% in 2018·19•
at 15% in ~19-20 an~ at 20% in 2020-21. The accounts are closed every year on 31st ~arch.
Ans. Balance of Machinery Ale at the end of2020-21 f 1,07,960.
Hint: Depreciation in 2018-19 f 2,000; 2019-20 f 15,300; 2020-21 f 20,740.
 ACCOUNTING FOR DEPRECIATION 231
11. A company purchased a machine for f 20,000 on 1st October, 2017 and on 1st April, 2018 another machine was
purchased16 for5 f l2,000. On 1st July, 2019 the first machine purchased on 1st Oct.ober, 2017 for f 20,000 was
sold for f : 00 ~d a new machine was purchased on the same day for f 10,000. On 31st March, 2021 the
second machine
4 which was Purchased on 1st April, 2018 for f 12 000 was sold for f 8,900. Prepare Machinery
Account for years, providing depreciation by Diminishing Balan::e Method at 10% per annum. The accounting
year of the company ends on Financial Year.
Ans. Depreciation 31.3.~018 f 1,000; 31.3.2019 f 3,100; 1.7.2019 f 427.50; 31.3.2020 f 1,830; 31.3.2021 f 1,897;
Loss on Sold Machme on 1.7.2019 f 172.50; Profit on sale of Machine on 31.3.2021 f 152; Balance of Machine
Ale on 31.3.2021 f 8,325
12. A manufac_t~g conce~, whose books are closed on 31st March, purchased machinery for f 50,000 on 1st April,
2016. _Additio~al machinery was acquired for f 10,000 on 1st Oct., 2017 and for f 16,000 on 1st April, 2020.
Ce~ machinery purchased for f 10,000 on 1st April, 2016 was sold for f 5,000 on 30th Sept., 2019. Show the
machinery account for five years writing off depreciation at 10% per annum on written down value.
Ans. Balance of Machinery Ale at end of2020-21, f 43,924.50.
13. A plant is purchased for f 60,000 on 28th June, 2018. Some additions (costing f 3,600) t.o the plant are made
o~ S~h_A~g., 2019 and some more additions (costing f 3,900) are m:adl! on 17th Jan., 2021. Depreciation on the
DimJD1Shing Balance Method is to be written off at 10% in 2018-19 at 15% in 2019-20 and at 20% in 2020-21,
calculations being made in terms of months proportionately to the ~riod of which the plant as well as additions
have been used. Write up the Plant Account up to March 31, for each year from 2018-19 to 2020-21. The accounts
are closed every year on 31st March.
Ans. Balance of Plant Ale as on!illrch 31, 2021, f 44,037.
14. Prepare a Machinery Account of a company for the year ending on 31st March, 2020 and 31st March, 2021:
(i) Balance of machinery account on 1st April, 2019 was f 28,540.
(ii) On 1st July, 2019 some plant having the value off 2,160 were sold for f 820. ·
(iii) Same day a new machine is purchased at f 4,580. Installation wages and other charges were f 150 and f
70 respectively.
(iv) On 1st Oct., 2020 they purchased new machine costing f 5,600.
(v) Company charges depreciation on new machine @ 7½% p.a. and old machine@ 10% p.a. by diminishing
balance method.
Ans. Total Depreciation in 2019-20--f 2,962 and in 2020-21-f 3,037.20; Balance of Machinery Account on
31.3.2020--f 28,272 and on 31.3.2021-f 30,834.80; Loss on Sale of Machine on 1.7.2019 = f 1,286.
[Hint: Calculation ofDepreciatiol). in 2019-20:

Dep. on sold plant on 1.7.2019 = 2,160 x 10% x 3 = f 54;

12
Dep. on old plant for whole year= 28,540 - 2,160 = 26,380@ 10% = f 2,638
Dep. on New plant purchased on 1.7.2019 = 4,800 x 7½% x 9 = f 270
12
Total Depreciation in 2019-20 = 54 + 2,638 + 270 =f 2,962
Calculation ofDepreciation in 2020-21 :
Depreciation on f 28,272@ 10% = f 2,827.20
Depreciation on f 5,600@ 7½% (1.10.2020 to 31.3.2021) = f 210
'Ibtal Depreciation= 2,827.20 + 210 = f 3,037.20]
15. A trading concern on 1st Oct., 2018 purchased a machine for f 65,000 and paid f 2,200 on its freight and f 2,800
on its establishment. On 1st Aptjl, 2019 another machine was purchased at a cost off 10,000. The concern
decided t.o provide depreciation @ 10% per year on Diminishing Balance Method. The concern closes its books
every year on 31st March. Prepare Machinery Account for first three years. IGST is c h ~ @ 12%.
Ans. Depreciation 1st year f 3,500, 2nd year f 7,650, 3rd year f 6,885, Balance of Machinery Ale f 61,965.
16. A Company, which closes its books every year on 31st March, purchased on 1st April, 2018 certain machinery
for f 30,000. Additional machinery were purchased on 1st Jan., 2020 for f 20,000 and on 1st Oct., 2020 for
f 10 000. Out of the machinery which was purchased on 1st July, 2018 the company sold 113rd part on 1st July,
2020 for f 3,000. Calculate depreciation at 10% on Reducing Balance Method and prepare Machinery Account
from 2018-19 to 2020-21.
Ans. Depreciation 1st year f 3,000, 2nd year 'f 3,200, 3rd year 'f 4,070, Loss on sale of 1st Machine f 5,100.00
and B ~ of Machinery Ale on 31.3.2021 'f 41,630.00.
17. A firm closes account books on 31st March every year and writes-off depreciation at 20% per annum on its
machi ry ~rding to Reducing Balance Method. On 1st April, 2020 the reduced value of machinery was
f 2,47 ~~O. On 30th June, 2020 the firm sold that machine~ for~ 12,000 which was purchased on 3lst March,
2014 for 'f 44,000 and on 31st Jan., 2021 discarded a machine which was purchased for 'f 15,600 on 30th Sept.,
2016. On 1st Aug., 2020 a new machine was purchased for 'f 19,000.
 FINANCIAL ACCOUNTING
232
Prepare Machinery Account for the year ended on 31st March, 2021 and calculations be made nearest to the

:.\..oss on sale of machine f 1,697; I..oss on discarded machine f 5,991; Depreciation for the year 2020-21
f 49,535 (721 + 1,198 + 47,616); Balance of Machinery Ne in 2020-21 f 1,96,797.
18. The balances of machinery account and provision for depreciation account on April 1, 2020 were f 2,50,000 and
f 58,000 respectively. Depreciation is charged on machinery at 20% p.a. by the diminishing balance method. A
piece of machinery purchased on April 1, 2018 for f 50,000 was sold on October 1, 2020 for f 30,000. Show
necessary ledger accounts when provision for depreciation account is maintained.
Ans. Balance of Machinery Ne f 2,00,000; Balance of Provision for Depreciation Account f 72,000; Profit on Sale
of Machine f 1,200.
Depreciation Fund Method · c:i

19. A company purchased 3 years' lease on 1st April, 2018 for f 20,000. It decided to provide for the replacement of
the lease at the end of 3 years by setting up a Depreciation Fund. It is expected that investments will fetch
interest at 5%. Sinking Fund tables show that to provide the requisite sum at 5% at the end of 3 years, an
investment off 6,344.16 is required every year. Investments are made to the nearest rupee. On 31st March,
2021, investments are sold for f 11,994.
Prepare the Lease Ne, Depreciation Fund Ne and Depreciation Fund Investment Ne.
Ans. I..oss in Depreciation Fund Investment Ne f 1,011.53.
20. On 1st April, 2016 Sri Ankur purchased an X-Ray Machine for f 1,35,000. It is expected that machine will
remain in use for 5 years and then scrap value will be f 35,000. A Sinking Fund created to replace the machine
by investing at 4% per annum. At the end of the fifth year investment was sold for f 81,700. As per Sinking
Fund Table at 4% interest an amount equal to f 0.18463 should be invested every year to receive one rupee
after 5 years. Prepare Machinery Ne, Sinking Fund Ne and Sinking Fund Investment Ne (Calculation should
be made to the nearest rupee).
Ans. Depreciation in each year 1,00,000 x 0.18463 = f 18,463; Interest II year f 739, III year f 1,507, IV year
f 2,305, V year f 3,136. Profit on Sale oflnvestment f 3,297.
21. A company purchased a three years' lease on April 1, 2018 for f 50,000 and decided to provide for the replacement
of lease at the end of three years by setting up a Depreciation Fund. It is expected that the investments will
fetch interest at the rate of 5% per annum. Sinking Fund Table shows that in order to provide f 1 at 5% at the
end of three years, an investment off 0.317208 is required. Investments are made to the nearest rupee. On
31st March, 2021, the investments were sold for f 32,520. On 1st April, 2021 the same lease is renewed for a
further period of three years by payment off 55,000. Show the necessary Ledger Accounts to record the above
transactions.
An&- Depreciation in each year f 15,860.
22. Mis Ram Lal & Co. purchased a machinery whose life was estimated three years, for a sum off 1,00,000. Its
residual value is estimated at f 12,500. You are required to depreciate the machine by Depreciation Fund
Method, investment to carry 5% interest. The amount to be annually set aside is f 27,769.
Prepare Depreciation Fund Account and Depreciation Fund Inve.s tment Account for the three years.
Ans. Int.erest II year f 1,388.45, III year f 2,846.32.
23. On 1st April, 2016 a machine was purchased for f 27,000, the life of which was estimated at 5 years. The
estimated residual value would be f 2,000. In order to replace the machinery after 5 years Depreciation fund
was created, the amount of which was invested outside the business. Rate of interest was 4% p.a. At the end of
the fifth year, f 19,400 were received by the sale of the investments. Prepare necessary accounts. According to
Sinking Fund Table, an investment off 0.184627 at 4% interest will fetch f 1 after 5 years.
Ans. Amount transfer to Depreciation Fund in each year-f 4,616, Interest: Year 2--f 185, Year 3- f 377, year
4--f 576, year 5--f 784, I..oss on sale oflnvestments f 202.
1. Ann~ty Method
24. A co~p~y has acquired land on a lease of 30 years and has erected a building costing f 9,90,000. You find from
the Sinking Fund Table that for the repayment off 9,90,000 in 30 years by way of annuity at 5 per cent per
annum an amount off 64,400 is to be provided every year. Make up the Leasehold Account for three years.
Show also the net charge to revenue for the first three years in connection with the leasehold.
Ans. Balance of Leasehold Account at the end of 3rd year, f 9,43,027.75; Net charge to Revenue Account:
I year, f 14,900; II year, f 15,645; III year, f 16,427.25.
25. On 1st April, 2018 Ramesh acquired a lease for a period of 3 years for f 20 000 and decided to write off
~eprecia~on by the Annuity Method charging interest at 5%. The annuity to pr~vide for f 1 for 3 years at 6%
mterest IS f 0.367208. Prepare Lease Account for 3 years.
Ans. Depreciation each year f 7,344.16.
 ACCOUNTING FOR DEPRECIATION 233
-------------=--=:....::..:..:..:..::~~~~~~~~-----------
26, A business~anrdacquired lease costing f one lakh for a term of 4 years on 1st April, 2017. You find from the ~uityff
table that mo er~ ~te-offthe lease on annuity method at 5% interest per annum, the amount to be wntten-o
annually as depreciation amounts to f 28,201.20. Prepare the Lease Account for all the four years and show the
annual net charge to revenue for each year
Ans, Interest : I yr. f 5,000; Il yr. f 3,839.94, Ill yr. 2,621.88, IV yr. f 1,342.98.
Net Charge to Revenue A I c :
I year, f 23,201.20; II year, f 24,361.26; III year f 25,579.32; IV year f 26,858.22.
27, On 1st April, 2018 'N acquired a lease for a period of 3 years for f 50 000 and decided to write off depreciation
by the annuity method charging interest at 5%. The annuity to pro~de for t 1 for 3 years at 5% interest is
f o.367208. Prepare the Lease Account.
Ans, Dep. each year f 18,360.40. Interest: I year f 2,500, II year f 1,706.98, III year f 874.22 .
•. i ,,. · i ,¢hai;l'g~in~~thqd:~tDepr~iati()n., v ,. 1 , ;<.

28, A manufacturing fi~ purchased on 1st April, 2016 certain will machinery for f 19,400 and spent f 600 on its
erection. On 1st Oct. m the same year additional machinery costing f 10,000 was acquired. On 1st Oct., 2018,
the machinery p~chased on 1st April, 2016 having become obsolete, was auctioned for f 8,000 and on the same
date fresh machinery was purchased at a cost off 15,000.
Depreciation was provided annually on 31st March at the rate of 10 per cent per annum on the original cost of
the asset. In 2019-20, however the firm changed this method to one of writing off 15 per cent p.a. on the writing
down value. Give the Machinery Account as, it would stand at the end of each year from 2016-17 to 2020-21. Made
your calculations to the nearest rupee. The accounts are closed every year on 31st March.
Ans. Loss on Sale of machine, f 7,000 in 2018. Balance of Machinery Account on 31st March, 2021, f 14,854.
29, The book value of Plant and Machinery on 1st April, 2018 was f 2,00,000. New machinery for f 10,000 was
purchased on 1st Jan., 2019 and for f 20,000 on 1st Oct., 2019. On 1st July, 2020 a machinery whose book value
had been f 30,000 on 1st April, 2018 was sold for f 16,000 and entrie amount was credited to Plant and
Machinery Account. Depreciation had been charged@ 10% p.a. on the book value on 1st April, 2018 on Straight
Line Method. It was decided on 31st March, 2021 that depreciation@ 20% p.a . on diminishing balance method
should be charged with retrospective effect since 1st April, 2018. Show the Plant and Machinery Account from
1st April, 2018 to 31st March, 2021.
Ans. Balance of Machinery Account on 31st March, 2021 f 1,07,920.
SO. Prakash & Co. which depreciates its machinery at 10% per ann~ on Diminishing Balance Method had on 1st
April, 2020 f 8,10,000 to the debit of Machinery Account. On 1st Oct., 2020 part of the machinery purchased on 1st
April, ~018 for f 75,000 was sold for f 42,000 and a new machinery at a cost off 1,50,000 was purchased and
installed on the same date, Installation charges being f 8,000. It is decided to change its method of depreciation
from Diminishing Balance Method to Fixed Instalment Method with effect from 1st April, 2018 and adjust the
difference in the accounts for 2020-21. The rate of depreciation remain the same before.
Prepare the Machinery Account for the year 31-3-2021.
Ans. Balance of Machinery Ale on 31.3.2021 f 7,97,600; Diff. in Dep. on machine sold f 750; Loss on Sale of
Machine f 15,712; Depreciation= 3,038 + 9,250 + 92,500 + 7,900 = f 1,12,688.
31, A Co. purchased second-hand plant for f 10,000 on 1st April, 2017. On 1st October in the same year an additional plant
costing? 5,000 is acquired. On 1st Oct., 2019, the plant purchased on 1st April, 2017 having become obsolete is sold off
for f 2,000 and on the same date a new plant is purchased at a cost off 12,000.
Depreciation is provided annually on 31st March at the rate of 10% per annum on the original cost of the assets
for 2019-20. However from 2020-21 the company changed this method and adopted the method of writing off
15% on the Diminishing value. Prepare the Plant Account from 2017-18 to 2020-21.
Ans. Balance of Plant Account on March 31, 2021 f 12,275, Excess Dep. f 709. ·
32, On 1st Jan., 2018 Vikas Company purchased a plant fort 10,00,000 and spent f 40,000 on installation. On 31st
July 2019 a part of it which originally had cost f 80,000 was sold for f 21,500. On 1st Sept., 2019, another
plan't was ~urchaaed for f 1,50,000. On 1st May, 2020, an~ther part of the first plant, which original~y ?~d c_ost
f 2,40 000 was sold for t 89 200. Depreciation was prOVIded for annually @ 10% per annum by Dimm1shmg
Balan~ Method. On let Oct.', 2020, however, the company changed this method of providing depreciation and
adopted the method of writing off6% per annum on the original cost of the plant. Prepare plant account. The
accounting year of the company ends on 31st March each year.
Ans. Balance ofplantA/c on 30-3-2021 t 7,15,350 on Sold Plant on 31.7.2019 f 46'.360 and on 1.5.2020 f 98,760.
[Hint : Loss on .sold of machine on 31st July, 2019 = f 46,360; Loss on sold of machine on 1st May, 2020 f 98,760;
Dep. in 2020-21 = 43,200 + 9,000 = f 52,200; Balance on 31st March, 2021 = 7,15,350.
234 FINANCIAL ACCOUNTING
33. On 1st April, 2015, a machine was purchased for f 57,000 and f 3,000 were spent o~ its installation. 0 ~
Oc~., 2016 another machine was purchased for f 40 ,000 _On lst Oct., 2019, that machine was sold for f 16,00o
2
whi~ ~as purchased on 1st April, 2015 on the same day a new machine was purchased for f ?,000. In the
begmmng depreciation was charged @ 10% per annum by Fixed Instalment Method of depreciation. From
2 0l8-19 Reducing Balance Method was adopted and the rate of depreciation was fixed l0%. Prepare Machinery
Account from 2015-16 to 2020-21. The books are closed every year on 31st March.
Ans. Loss o~ sale of 1st Machine f 21,398, Balance of Machinery Ale in 2020-21 : 2nd Machine f 24,932 and 3rd
Machine f 17,100.
34. A manufacturer, on 1st April, 2016 purchased a machine for f 1,00,000 and spent on its erection f 2,000. The same
year on 1st Oct. another machine was purchased for f 50,000. On 1st April, 2018 that machine was sold for f 40,000
~hich he purchased in 1st April, 2016, and on the same day he purchased a new machine for f 25,000. Depreciation
IS charged at 10% per annum by Fixed Instalment Method. In 2018-19, it was changed and used Diminishing
Balance Method at 15% per annum. Prepare machinery Account from 2016-17 to 2020-21.
Ans. Loss on sale of machine in 2018-19 f 33,695; Balance of Machine Account in 2020-21: f 39,495.
·· Insurance :Polic,y Method ...
35. On 1st April, 2016 a company purchased a lease for five years at f 30,000. Insurance Policy Method has been applied
for its replacement. Prepare necessary accounts for five years. Annual Insurance premium amount is f 5,800.
Ans. Profits f 1,000.
36.
A p~ased a machinery for f 1,000, which is expected to last for 3 years. He is informed that its scrap value will
realise f 125. He decided to purchase an endournment policy for 3 years for a sum off 875. The annual premium
is f 275. Prepare Machinery Account, Depreciation Fund Account and Depreciation Fund Policy Account.
Ans. Profit on Policy f 50 which will be transferred to Dep. Fund Policy Account in 3rd year.