SUBJECT : ACCOUNTING FOR MANAGERS

COURSE CODE : CP-104 UPDATED BY: DR. M.C. GARG

LESSON NO. : 7

DEPRECIATION ACCOUNTING AND POLICY

STRUCTURE
7.0 Objective
7.1 Meaning of Depreciation
7.2 Causes of Depreciation
7.3 Need for Providing Depreciation

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7.4 Basic Elements of Depreciation
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Methods of Calculating Depreciation
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7.6 Methods of Recording Depreciation

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7.7 Sale of an Asset

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7.8 Change of Depreciation Method

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7.9 Summary
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7.10 Keywords
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7.11 Self Assessment Questions

7.12 Suggested Readings
7.0 OBJECTIVE
After reading this lesson, you should be able to
(a) Define depreciation and describe the causes of depreciation.
(b) Discuss the various methods of charging depreciation.
(c) Explain the accounting treatment of depreciation
7.1 MEANING OF DEPRECIATION
Generally, the term depreciation is used to denote decrease in value but in
accounting, this term is used to denote decrease in the book value of fixed asset.
Depreciation is the permanent and continuous decrease in the book value of a fixed
asset due to use, affluxion of time, obsolescence, expiration of legal rights or any
other cause. According to the Institute of Chartered Accountants of England and
(1)
Wales, “Depreciation represents that part of the cost of a fixed asset to its owner
which is not recoverable when the asset is finally out of use by him. Provision
against this loss of capital is an integral cost of conducting the business during the
effective commercial life of the asset and is not dependent on the amount of profit
earned”.
Depreciation is not the result of fluctuations in the value of fixed assets since, the
fluctuation is concerned with the market price of the fixed asset whereas the
depreciation is concerned with the historical cost.
An analysis of the definition given above highlights the characteristics of
depreciation as follows :
(a) It is related to fixed assets only.

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(b) It is a fall in the book value of an asset.
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(c) The fall in the book value of an asset is due to the use of the asset in business
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operations, effluxion of time, obsolescence, expiration of legal rights or

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any other cause.

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(d) It is a permanent decrease in the book value of an asset.

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(e) It is a continuous decrease in the book value of an asset.

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Depreciation, Depletion and Amortisation

The terms depreciation, depletion and amortisation are used often interchangeably.
However, these different terms have been developed in accounting usage for
describing this process for different types of assets. These terms have been
described as follows:
Depreciation
Depreciation is concerned with charging the cost of man made fixed assets to
operation (and not with determination of asset value for the balance sheet). In other
words, the term 'depreciation' is used when expired utility of physical asset (building,
machinery, or equipment) is to be recorded.
Depletion
This term is applied to the process of removing an available but irreplaceable
(2)
resource such as extracting coal from a coal miner or oil out of an oil well.
Depletion differs from depreciation in that the former implies removal of a natural
resource, while the latter implies a reduction in the service capacity of an asset.
Amortisation
The process of writing off intangible assets is termed as amortisation. The intangible
assets like patents, copyrights, leaseholds and goodwill are recorded at cost in the
books of account, Many of these assets have a limited useful life and are, therefore,
written off.
Obsolescence
It refers to the decline in the useful life of an asset because of factors like (i)
technological advancements, (ii) changes in the market demand of the product, (iii)

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legal or other restrictions, or (iv) improvement in production process.
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Meaning of Depreciation Accounting

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According to the American Institute of Certified Public Accountants (AICPA),

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“Depreciation Accounting is a system of accounting which aims to distribute cost or

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the basic value of tangible capital assets less salvage (if any), over the estimated useful
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life of the unit (which may be group of assets) in a systematic and rational manner. It is
a process of allocation and not of valuation.
7.2 CAUSES OF DEPRECIATION
The main causes of depreciation include the following :
(a) Physical wear and tear : When the fixed assets are put to use, the value of
such assets may decrease. Such decrease in the value of assets is said to be due to
physical wear and tear.
(b) With the passage of time : When the assets are exposed to the forces of nature
like whether, winds, rains, etc., the value of such assets may decrease even if they are
not put to any use.
(c) Changes in economic environment : The value of an asset may decrease due
to decrease in the demand of the asset. The demand of the asset may decrease due to
technological changes, changes in the habits of consumers etc.

(3)
(d) Expiration of legal rights : When the use of an asset (e.g., patents, leases) is
governed by the time bound arrangement, the value of such assets may decrease with
the passage of time.
7.3 NEED FOR PROVIDING DEPRECIATION
The need for providing depreciation in accounting records arises due to any one or
more of the following objectives to be achieved :
(a) To ascertain true results of operations : For proper matching of costs with
revenues, it is necessary to charge the depreciation (cost) against income (revenue) in
each accounting period. Unless the depreciation is charged against income, the result
of operations would stand overstated. As a result the Income Statement would fail to
present a true and fair view of the result of operations of an accounting entity.

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(b) To present true and fair view of the financial position : For presenting a
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true and fair view of the financial position, it is necessary to charge the depreciation. If
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the depreciation is not charged, the unexpired cost of the asset concerned would be
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overstated. As a result, the Position Statement (i.e. the Balance Sheet) would not present
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a true and fair view of the financial position of an accounting entity.

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(c) To ascertain the true cost of production : For ascertaining the cost of
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production, it is necessary to charge depreciation as an item of cost of production. If

the depreciation on fixed assets is not charged, the cost records, would not present a
true and fair view of the cost of production.
(d) To comply with legal requirements: In case of companies, it is compulsory
to charge depreciation on fixed assets before it declares dividend [Sec. 205(1) of the
Companies Act, 1956].
(e) To accumulate funds for replacement of assets : A portion of profits is set
aside in the form of depreciation and accumulated each year to provide a definite amount
at a certain future date for the specific purpose of replacement of the asset at the end
of its useful life.

7.4 BASIC ELEMENTS OF DEPRECIATION

In order to assess depreciation amount to be charged in respect of an asset in an
accounting period the following three important factors should be considered :

(4)
1. Cost of the asset : The knowledge about the cost of the asset is very essential
for determining the amount of depreciation to be charged to the profit and
loss account. The cost of the asset includes the invoice price of the asset
less any trade discount plus all costs essential to make the asset usable.
Cost of transportation and transit insurance are included in acquisition cost.
However, the financial charges such as interest on money borrowed for the
purchase for the purchase of the asset, should no be included in the cost of
the asset.
2. Estimated life of the asset : Estimated life generally means that for how
many years or hours an asset could be used in business with ordinary repairs
for generating revenues. For estimating useful life of an asset one must begin
with the consideration of its physical life and the modifications, if any, made,
factors of obsolescence and experience with similar assets. Infact, the

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economic life of an asset is shorter than its physical life. The physical life
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is based mostly on internal policies such as intensity of use, repairs,

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maintenance and replacements. The economic life, on the other hand, is based
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mostly on external factors such as obsolescence from technological changes.

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3. Scrap. Value of the Asset : The salvage value of the asset is that value which
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is estimated to be realised on account of the sale of the asset at the end of

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its useful life. This value should be calculated after deducting the disposal
costs from the sale value of the asset. If the scrap value is considered as
insignificant, it is normally regarded as nil
7.5 METHODS OF CALCULATING DEPRECIATION
The following are various methods of allocating depreciation in use :
1. Fixed instalment method or straight line method.
2. Machine hour rate method.
3. Diminishing Balance method.
4. Sum of years digits method
5. Annuity method
6. Depreciation Fund Method
7. Insurance Policy Method
8. Depletion Method.

(5)
1. Straight Line Method : This is also known as fixed instalment method.
Under this method the depreciation is charged on the uniform basis year
after year. When the amount of depreciation charged yearly under this method
is plotted on a graph paper, we shall get a straight line. Thus, the straight line
method assumes that depreciations is a function, of time rather than use in
the sense that each accounting period received the same benefit from using
the asset as every other period. The formula for calculating depreciation
charge for each accounting period is :

amount of annual Depreciation =

For example, if an asset cost Rs. 50,000 and it will have a residual value of Rs.
2000 at the end of its useful life of 10 years, the amount of annual depreciation

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will be Rs. 4800 and it will be calculated as follow :
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Depreciation =
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This method has many shortcomings. First, it does not take into consideration the
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seasonal fluctuations, booms and depression. The amount of depreciation is the

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same in that year in which the machine is used day and night to that in the another
year in which it is used for some months. Second, it ignores the interest on the
money spent on the acquisition of that asset. Third, the total charge for use of asset
(i.e., depreciation and repairs) goes on increasing form year to year though the
assets might have been use uniformly from year to year. For example, repairs cost
together with depreciation charge in the beginning years is much less than what it
is in the later year. Thus, each subsequent year is burdened with grater charge for
the use of asset on account of increasing cost on repairs.
Illustration - I : H. Ltd. purchased a machinery on 1st January. 2000 for Rs. 29000
and spent Rs. 2000 on its cartage and Rs. 1,000 on its erection. Machinery is
estimated to have a scrap value of Rs. 5000 at the end of its useful life of 5 year.
The accounts are closed every year on 31st December. Prepare the machinery
account for five years charging depreciation according to straight line method.

(6)
Solution :
Machinery Account
Date Particulars Rs. Date Particulars Rs.
1990 To Bank 22000 Dec. 31 By Depreciation 4000
Jan. 1 To Bank 2000 " By Balance C/d 21000
To Bank 1000
25000 25000
2001 To Balance b/d 21000 2001 By Depreciation 4000
Jan.1 Dec.31 Balance c/d 17000
21000 21000
2002 To Balance/b/c 17000 2002 By Depreciation 4000
Jan.1 Dec. 31 By Balance c/d 13000

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17000 17000
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2003 To Balance b/c 13000 2003 By Depreciation 4000
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Jan.1 Dec.31 By Balance 9000

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13000 13000
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2004 To Balance b/d 9000 2004 By Depreciation 4000

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Jan.1 Dec.31 By Balance c/d 5000

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9000 9000
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This method is very suitable particularly in case of those assets which get depreciated
more on account of expire of period e.g. lease hold properties, patents, etc.
2. Machine Hour Rate Method : In case of this method, the running
time of the asset is taken into account for the purpose of calculating the
amount of depreciation. It is suitable for charging depreciation on plant and
machinery, air-crafts, gliders, etc. The amount of depreciation is calculated
as follows :

For example, if machinery has been purchased for Rs. 20000 and it will
have a scrap value of Rs. 1000 at the end of its useful life of 1900 hours, the
amount of depreciation per hour will be computed as follows :
(7)
 Depreciation =

= Rs. 10 per hour

If in a particular year, the machine runs for 490 hours, the amount of depreciation
will be Rs. 4900 (i.e., Rs. 10x490). It is obvious from this example that under
machine hour rate method the amount of depreciation is closely related with the
frequency of use of an asset. The simplicity in calculations and under standing is
the main advantage of this methods. However, it can be used only in case of those
assets whose life can be measured in terms of working time.
3. Written Down Value Method : This is also known as Diminishing Balance

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method. Under the diminishing balance method depreciation is charged at fixed
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rate on the reducing balance (i.e., cost less depreciation) every year. Thus, the
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amount of depreciation goes on decreasing every year. Under this method also the
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amount of depreciation is transferred to profit and loss account in each of the year
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and in the balance sheet the asset is shown at book value after reducing depreciation
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from it. For example, if an asset is purchased for Rs. 10,000 and depreciation is to
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be charged at 20% p.a. on reducing balance system then the depreciation for the
first year will be Rs. 2000. In the second year, it will Rs. 1600 (i.e. 20% of 8000),
in the third year Rs. 1280 (i.e. 20% of 6400) and so on. The rate of depreciation
under this method can be computed by using the following formula :

Depreciation rate = -1

For example, if the cost of an asset is 27000, scrap value Rs. 3375, economic life
3 year, the rate of depreciation would be :

Depreciation Rate = 1-3

=1- = 50%

(8)
Merits of Diminishing Balance Method : (i) It is very easy to understand and
calculate the amount of depreciation despite the early variation in the book value
after depreciation (ii) This method put an equal burden for use of the asset on each
subsequent year since the amount of depreciation goes on decreasing for each
subsequent year while the charge for repairs goes on increasing for each subsequent
year. (iii) This method has also been approved by the income tax act applicable in
India (iv) Asset is never reduced to zero because if the rate of depreciation is (say)
20%. Then even when asset is reduced to very small value, there must remain the
80% of that small value as on written off balance.
Demerit : (i) It ignores the interest on the capital committed to purchase that
asset. (ii) It does not provide adequately for replacing the asset at the end of its
life. (iii) The calculation of rate of depreciation is not so simple. (iv) The formula
for calculating the rate of depreciation can be applied only when there is some

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residual of the asset. fre
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Suitability : This method is suitable in those cases where the receipts are expected
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to decline as the asset gets older and, it is believed that the allocation of depreciation
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of depreciation ought to be related to the pattern of assets expected receipts.

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Illustration 2 : A company purchases Machinery on 1st April 1990 for Rs.

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20,000. Prepare the machinery account for three years charging depreciation @
25% p.a. according to the written Down value Method.
Machinery Account
Date Particulars Rs. Date Particulars Rs.
1990 To Bank 20000 2001 By Depreciation 5000
Apr. 1 Mar. 31 By Balance C/d 15000
20000 20000
2001 To Balance b/d 15000 2002 By Depreciation 3750
Apr.1 Mar.31 By Balance c/d 11250
15000 15000
2002 To Balance b/d 11250 2003 By Depriciation 2812.5
Apr/ Mar.31 By Balance c/d 8437.5
11250 11250
(9)
4. Sum of Years digits (SYD) Method: Under this method also the amount of
depreciation goes on diminishing in the future years similar to that under
diminishing Balance method.
For calculating the amount of depreciation to be charged to the profit and loss
account this method takes into account cost, scrape value, and life of the asset. The
following formula is used for determining depreciation :

For example, an asset having an effective life of 5 years is purchased at a cost of

Rs. 20,000. It is estimated that its scrap value at the end of its effective life will be
Rs. 2000. The depreciation on this asset, if SYD method is followed, will be

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calculated as follows from one to five years :
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Year Depreciation Amount

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1 = __________ x 18000 = Rs. 6000

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2. = __________ x 18000 = Rs. 4800

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3. = __________ x 18000 = Rs. 3600

4. = __________ x 18000 = Rs. 2400
5. = __________ x 18000 = Rs. 1200

5. Annuity Method : Sofar we have described such methods of charging

depreciation which ignore the interest factor. Also, some times it becomes
inconvenient for a company to follow any of the methods discussed earlier. Under
such circumstances the company may use some special depreciation systems.
Annuity method is one of these special systems of depreciation. Under this system,
the depreciation is charged on the basis that besides losing the acquisition cost of
the asset the business also loses interest on the amount used for purchasing the
asset. Here, interest refers to that income which the business would have earned
otherwise if the money used in buying the asset would have been committed in

(10)
some other profitable investment. Therefore, under the annuity method the amount
of total depreciation is determined by adding the cost of the and interest thereon at
an expected rate. The annuity table is used to help in the determination of the amount
of depreciation. A specimen of Annuity Table is as follows :
Annuity Table
Year 3% 4% 5% 6%
4 0.269027 0.275490 0.282012 0.288591
5 0.218335 0.224627 0.230975 0.237376
6 0.184598 0.190762 0.197012 0.203363
7. 0.160506 0.166610 0.172820 0.179135
8. 0.142456 0.148528 0.154722 0.161036
9. 0.128434 0.134493 0.140690 0.147022
10. 0.117231 0.12391 0.129505 0.135868

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In case depreciation is charged according to this method, the following accounting entries are
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passed :
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(i) Purchase of an asset

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Asset Account Dr.

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To Bank
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(ii) For Charging interest

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Asset Account Dr.

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To Interest Account
(iii) For Charging depreciation :
Depreciation Account Dr.
To Asset Account
Evaluation of Annuity Method
Merits : (i) This method keep into account interest on money spent on the purchase of
the asset. (ii) The value of the asset become zero at the end of life.
Demerits. (i) This method is comparatively more difficult than the methods discussed so far.
(ii) It makes no arrangement of money to replace the old asset with the new one at the expiry
of its life. (iii) Under this method the burden on the profit and loss account is no similar in each
year because the depreciation remains constant year after year but the interest goes on
decreasing.
Illustration 3. On 1st January, 2000 a firm purchased a leasehold property for 4 year at a
cost of Rs. 24000. It decides to depreciate the lease by Annuity Method by charging interest
at 5% per annum. The Annuity Table shows that the annual necessary to write off Rs. 1 at 5%
Rs. 0.282012. You are required to prepare the lease Hold Property Account for four years
and show the net amount to be charged to the profit and loss account for these four years.
(11)
 Lease Hold Property Account
Date Particulars Rs. Date Particulars Rs.
2000 To Bank 24000.00 2000 By Depreciation 6768.29
Jan. 1 Dec. 31
To interest 1200.00 Dec.31 By balance c/d 18431.71
25200.00 25200.00
2001 To balance b/d 18431.71 2001 By Depreciation 6768.29
Jan.1 Dec.31
Dec.31 To Interest 921.59 Dec.31 By Balance c/d 12585.01
19353.30 19353.30
2002 To balance b/d 12585.01 2002 By Depreciation 6768.29

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Jan.1 Dec.31
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Dec. 31 To Interest 629.25 Dec.31 By Balance c/d 6445.97
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13214.26 13214.26
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2003 To balance b/d 6445.97 2003 By Depreciation 6768.29

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Jan.1 Dec.31 By Balance c/d 9000

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Dec.31 To Interest 322.30 13000

6768.27 6768.27
Net Amount chargeable to the profit and loss account
Year Depreciation Interest Credited Net Charge
debited against Profit
2000 6768.29 1200.00 5568.29
2001 6768.29 921.59 5846.70
2002 6768.29 629.25 6139.04
2003 6768.29 322.30 6445.99
Rs. 27073.16 3073.14 24000.02
6. Depreciation Fund Method : Business assets become useless at the expiry
of their life and, therefore, need replacement. However, all the methods of
depreciation discussed above do not help in accumulating the amount which can be
readily available for the replacement of the asset its useful life comes to an end
(12)
Depreciation fund method takes care of such a contingency as it incorporates the
benefits of depreciating the asset as well as accumulating the necessary amount for
its replacement. Under this method, the amount of depreciation charged from the
profit and loss account is invested in certain securities carrying a particular rate of
interest. The interest received on the investment in such securities is also invested
every year together with the amount of annual depreciation. In the last of the life of
asset the depreciation amount is set aside interest is received as usual. But the
amount is not invested because the amount is immediately needed for the purchase
of new asset. Rather all the investments so far accumulated are sold away. Cash
realised on the sale of investments is utilised for the purchase of new asset. The
following accounting entries are generally made in order to work out this system
of depreciation.
1. At the end of the first year

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(i) for setting aside the amount of depreciation : The amount to be charge
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by way of depreciation is determined on the basis of sinking Fund Table given as an
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Appendix at the end of every book of accountancy.

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Depreciation Account Dr.

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To Depreciation Fund Account (or Sinking Fund A/c)

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(ii) For investing the amount charged by way of depreciation :

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Depreciation Fund Investment A/c Dr.

To Bank A/c
In the second and subsequent years
(i) For receiving interest. The interest on the balance of Depreciation
Fund Investment outstanding in the beginning of each year will be received by the
end of the year. This entry is :
Bank Account Dr.
To Depreciation Fund Account
(ii) For setting aside the amount of depreciation
Profit and Loss A/c Dr.
To Depreciation Fund A/c
(iii) For investing the amount
Depreciation Fund Investment A/c Dr.
To Bank A/c
(Annual instalment of depreciation and interest received invested)

(13)
3. In the last year
(i) For receiving interest :
Bank A/c Dr.
To Depreciation Fund A/c
(ii) For setting aside the amount of depreciation
Profit and loss A/c Dr.
To depreciation Fund A/c
Note : In the last year no investment will be made, because the amount is
immediately required for the purchase of new asset.
(iii) For the sale of investment :
Bank A/c Dr.

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To Depreciation Fund Investment A/c
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(iv) For the transfer of profit or loss on sale on investments : The profit
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or loss on the sale of these investments is transferred to the Depreciation Fund

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Account.
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The entry for loss :

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Depreciation Fund A/c Dr.

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To Depreciation Fund Investment A/c

The entry for profit
Depreciation Fund Investment A/c
To Depreciation Fund A/c
(v) For the sale of old asset :
Bank A/c Dr.
To asset A/c
(vi) The depreciation fund is transferred to asset account and any balance
left in the asset account is transferred to profit and loss account. The entry is :
Depreciation Fund A/c. Dr.
To asset A/c
(vii) The balance in Asset Account represents profit or loss. Therefore it
will be transferred to the profit and loss account.
(14)
 (viii) The cash realised on the sale of investments and the old asset is utilised
for the purchase of new asset.
Illustration 4. Amitabh Company Ltd. purchased 4 year lease on January ,
2000 for Rs. 60,000. The company decided to charge depreciation according to
depreciation fund method. It is expected that investments will earn interest @5%
p.a. Sinking Fund Table shows that Rs. 0.232012 invested each year will produce
Rs. 1 at the end of 4 years at 5% p.a. At the expiry of lease , the Depreciation Fund
Investments were sold for Rs. 45200. A new lease is purchased for Rs. ................
on 1.1.2004. Show the journal entries and prepare the necessary accounts in the
book the company.
Journal
Date Particulars Debit Credit

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1.1.2000 Lease A/c Dr. fre 60,000 60,000
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To Bank A/c
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(Being the purchase of lease)

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31.12.00 Depreciation A/c Dr. 13920.7 13920.7

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To Depreciation Fund A/c

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(Being annual amount of depreciation

as per sinking fund tables)
31.12.00 Depreciation Fund Investment A/c Dr. 13920.7 13920.7
. To Bank A/c
(Being purchase of the investments
against the depreciation fund)
31.12.01 Bank A/c Dr. 696.0 696.0
To depreciation fund A/c
(Being the receipt of interest on
depreciation fund investment A/c
transfer to depreciation fund A/c
31.12.01 Depreciation A/c Dr. 13920.7 13920.7
To Depreciation Fund A/c
(Being annual depreciation set-aside)
(15)
31.12.01 Depreciation Fund Investment A/c Dr. 14616.7 14616.7
To Bank A/c
(Being purchase of the investments
against the depreciation fund)
31.12.02 Bank Account Dr. 1426.9 1426.9
To depreciation fund A/c
Being receipt of interest and its
transfer to depreciation fund A/c)
31.12.02 Depreciation A/c Dr. 13920.7 13920.7
To depreciation fund A/c
(Being annual depreciation set aside

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31.12.02 Depreciation Fund Investment A/c Dr.
fre 15347.6 15347.6
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To Bank A/c
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(Being purchase of investments)

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31.12.03 Bank A/c Dr. 2194.3 2194.3

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to depreciation fund A/c

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(Being receipt of interest on

depreciation fund investment
31.12.03 Depreciation A/c Dr. 13920.7 13920.7
To depreciation A/c
(Being annual depreciation set aside)
31.12.00 Bank A/c Dr. 45200 45200
To depreciation fund investment A/c
(being sale of Dep fund investment A/c)
31.12.03 Depreciation Fund Investment A/c Dr. 1315.0 1315.0
To depreciation fund A/c
(Being profit on sale investment
transferred)

(16)
31.12.03 Depreciation fund A/c Dr. 61315.0 61315.0
to lease A/c
(Being the transfer of depreciation
fund A/c to lease A/c)
31.12.03 Lease A/c Dr. 1315.0 1315.0
To PCL A/c
(Being Balance of lease A/c
transferred to place
1.1.04 Lease A/c Dr. 70000.0 70000.0
To Bank A/c

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Depreciation Fund Account
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Date Particulars Rs. Date Particulars Rs.

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31.12.00 By Balance c/d 13920.7 31.12.00 By Dep. a/c 13920.7

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13920.7 13920.7
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31.12.01 To Balance c/d 28537.4 1.1.01 By Balance b/d 13920.7

31.12.01 By Bank A/c Int. 696.0
31.12.01 By Dec. a/c 13920.4
28537.4 28537.4
31.12.02 By Balance c/d 43885.0 1.1.02 By Balance c/d 28537.4
31.12.02 By Bank A/c Int. 1426.9
31.12.02 By Dep. A/c 13920.7
43885.0 43885.0
31.12.03 To lease A/c 61315.0 1.1.03 By Balance b/d 43885.0
31.12.03 By Bank Interest 3194.3
31.12.03 By Dep. a/c 61315.0
61315.0 61315.0

(17)
 Lease Account
Date Particulars Rs. Date Particulars Rs.
1.1.00 To Bank A/c 60000 31.12.00 By Balance c/d 60000
60000 60000
1.1.01 To Balance b/d 60000 31.12.01 By Balance c/d 60000
60000 60000
1.1.02 To Balance b/d 60000 31.12.02 By Balance c/d 60000
60000 60000
1.1.03 To Balance b/d 60000 31.12.03 By Balance c/d 60000
60000 60000
31.12.03 To Balance b/d 60000

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31.12.03 To P & L A/c 1315 fre
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(Profit) 61315 61315
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Depreciation Fund Investment A/c

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Date Particulars Rs. Date Particulars Rs.

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31.12.00 To Bank A/c 13920.7 31.12.00 By Balance c/d 13920.7

13920.7 13920.7
1.1.01 To Balance b/d 13920.7 31.12.01 By Balance c/d 28537.4
31.12.02 To Bank A/c 14616.7
28537.4 28537.4
1.1.02 To Balance b/d 28537.4 31.12.02 By Balance c/d 43885.0
31.12.02 To Bank A/c 15347.6
43885.0 43885.0
1.1.03 To Balance b/d 43885.0 31.12.03 By Bank a/c 45200.0
To Dep. Fund a/c 1315.0
45200.0 45200.0

7. Insurance Policy Method : Under this method, instead of investing the

money in securities an insurance policy for the required amount is taken. The amount
(18)
of the policy is such that it is adequate to replace the asset when it is worn out. A
fixed sum equal to the amount do depreciation is paid as premium every year.
Company receiving premium allows a small rate of interest on compound basis. At
the maturity of the policy, the insurance company pays the agreed amount with
which the new asset can be purchased. Accounting entries will be made as follows.
1. First and every subsequent years :
(a) Depreciation Insurance policy A/c Dr.
To Bank
(Entry in the beginning of the year for payment of insurance premium)
(b) Profit and loss Account Dr.
To Depreciation fund A/c

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(Entry at the end of the year for providing depreciation )
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2. Last year :
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(a) Bank A/c Dr.

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To Depreciation Policy A/c

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(Entry for the amount of policy received)

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(b) For transfer of profit on insurance policy :

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Depreciation Insurance Policy A/c Dr.

To Depreciation Fund A/c
(c) For transfer of accumulated depreciation to the asset account :
Depreciation Fund A/c Dr.
To Asset A/c
(d) On purchase of new asset :
On purchase of new asset :
New Asset A/c Dr.
To Bank

Illustration 5. On 1.1.2003, a firm purchased a lease for four years for Rs.
50,000. It decided to provide for its replacement by means of an insurance policy
for Rs. 50,000. The annual premium is Rs. 11,000. On 1.1.1997, the lease is renewed
(19)
for a further period of 4 years for the same amount. Show the necessary ledger
accounts.
Lease Account
Date Particulars Rs. Date Particulars Rs.
1.1.03 To Bank A/c 50000 31.12.03 By Balance c/d 50000
1.1.04 To Balance b/d 50000 31.12.04 By Balance c/d 50000
1.1.05 To Bank A/c 50000 31.12.05 By Balance c/d 50000
1.1.06 To Bank A/c 50000 31.12.06 By Balance c/d 50000

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Depreciation Insurance Policy A/c
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Date Particulars Rs. Date Particulars Rs.

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1.1.03 To Balance A/c 11000 31.12.03 By Balance c/d 11000

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1.1.04 To Balance b/d 11000 31.12.04 By Balance c/d 22000

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To Bank A/c 11000

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22000 22000
1.1.05 To Balance b/d 22000 31.12.05 By Balance c/d 33000
To Bank A/c 11000
33000 33000
1.1.06 To Balance b/d 33000 31.12.06 By Bank 50000
To Bank 11000
Dec.31 To profit 6000
Transferred to
Dep. Fund A/c
50000 50000

(20)
 Depreciation Fund Account
Date Particulars Rs. Date Particulars Rs.
1.1.03 To Balance c/d 11000 31.12.03 By P. & L c/c 11000
1.1.04 To Balance c/d 22000 31.12.04 By Balance b/d 11000
Dec. 31 By P. & L a/c 11000
22000 22000
1.1.05 To Balance c/d 33000 31.12.05 By Balance b/d 22000
By P. & L. a/c 11000
33000 33000
1.1.06 To Lease a/c 50000 31.12.06 By Balance b/d 33000

in
Dec. 31 By P. & L. a/c 11000
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Dec. 31 By Dep. Insurance 6000
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Policy a/c
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50000 50000
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8. Depletion Method : This is also known as productive output method.

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In this method it is essential to make an estimate of the units of output the asset
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will produce in its life time. This method is suitable in case of mines, queries, etc.,
where it is possible to make an estimate of the total output likely to be available.
Depreciation is calculated per unit of output. Formula for calculating the
depreciation rate is as under: r=

Example : If a mine is purchased for 50,000 and it is estimated that the total
quantity of mineral in the mine is 1,00,000 tonnes, the rate of depreciation would
be :
Rs. 50,000 = Rs. 0.5
r =
1,00,000
Hence, the rate of depreciation is 50 praise per tonne. In case output in a year is
20,000 tonnes, the amount of depreciation to be charged to the profit and loss
account would be Rs. 10,000 (i.e., 20,000 tonnes X Rs. 0.50).

(21)
This method is useful where the output can be measured effectively, and the utility
of the asset is directly related to its production use. Thus, the method provides the
benefit of correlating the amount of depreciation with the productive use of asset.
7.6 METHODS OF RECORDING DEPRECIATION
In order to record depreciation, a provision for depreciation may or may
not be maintained. In case a ‘Provision for Depreciation Account’ is maintained, the
respective asset appears at its original cost since the depreciation is credited to
‘Provision for Depreciation Account’ instead of the ‘Respective Asset Account’. In
case a ‘Provision for Depreciation Account’ is not maintained, the respective asset
appears at a written down value since the depreciation is credited to the ‘Respective
Asset Account’. The accounting entries under both these cases are summarised as under:
Case When a Provision for Depreciation When a Provision for Depreciation

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Account is maintained
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(a) For providing Depreciation Dr. Depreciation A/c Dr.
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depreciation To Provision for To Asset A/c

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Depreciation
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(b) For closure of Profit and Loss A/c Dr. Profit and Loss A/c Dr.
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Depreciation A/c To Depreciation A/c To Depreciation A/c

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(c) On disposal of an (i) For transfer of original (i) For recording sale proceeds
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Asset cost of asset disposed off Cash A/c/Bank A/c Dr.

Asset Disposal A/c Dr. To Asset A/c
To Asset A/c (ii) For transfer of Profit/loss on
(ii) For transfer of accumulated asset disposed off
depreciation on asset disposed (a) In case of profit
off Asset A/c Dr.
Provision for Depreciation A/c Dr. To Profit and Loss A/c
To Asset Disposal A/c (b) In case of loss, reverse of
(iii) For recording sale proceeds the above entry will be passed.
Cash A/c/Bank A/c Dr.
To Asset Disposal A/c
(iv) For transfer of the balance in
Asset Disposal Account
(a) In case of profit
Asset Disposal A/c Dr.
To Profit & Loss A/c
(b) In case of loss, reverse of the
above entry will be passed.

(22)
Notes :
(i) Book Value as on date of Sale = Original Cost–Total Depreciation till date of
sale
(ii) Profit=Sale Proceeds – Book Value as on date of sale
(iii) Loss=Book value as on date of sale – Sale Proceeds
(iv) In case of exchange of an asset, sale proceeds imply the ‘Trade in allowance’
(i.e. the amount at which the vendor agrees to acquire the old asset).
(v) In case of destruction/damage of an insured asset by fire or accident, sale
proceeds imply claim admitted by Insurance company together with salvage
value (if any).
Illustration 6 : On Ist Jan. 2006, X Ltd. purchased a machinery for Rs. 12,00,000. On
Ist July 1998, a part of the machinery purchased on Ist Jan. 2006 for Rs. 80,0000 was
sold for Rs. 45,000 and a new machinery at a cost of Rs. 1,58,000 was purchased and

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installed on the same date. The company has adopted the method of providing 10% p.a.
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depreciation on the original cost of the machinery.
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Required : Show the necessary leader accounts assuming that (a) Provision for
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Depreciation Account is not maintained, (b) Provision for Depreciation Account is

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maintained.
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Solution :
(a) When Provision for Depreciation Account is not maintained
Dr. Machinery Account Cr.
Date Particulars Rs. Date Particulars Rs.
01.01.06 To Bank A/c 12,00,000 31.12.06 By Depreciation A/c 1,20,000
By Balance c/d 10,80,000
12,00,000 12,00,000
01.01.97 To Balance b/d 10,80,000 31.12.97 By Depreciation A/c 1,20,000
By Balance c/d 9,60,000
10,80,000 10,80,000
01.01.98 To Balance b/d 9,60,000 01.07.98 By Bank A/c 45,000
01.07.98 To Bank A/c 1,58,000 By Profit & Loss A/c 15,000
31.12.98 By Depreciation A/c 1,23,900
By Balance c/d 9,34,100
11,18,000 11,18,000

(23)
(b) When ‘Provision for Depreciation Account is maintained

Dr. Machinery Account (at original cost) Cr.

Date Particulars Rs. Date Particulars Rs.

01.01.06 To Bank A/c 12,00,000 31.12.06 By Balance c/d 12,00,000
01.01.97 To Balance b/d 12,00,000 31.12.97 By Balance c/d 12,00,000
01.01.98 To Balance b/d 12,00,000 01.07.98 By Asset Disposal A/c 80,000
01.07.98 To Bank A/c 1,58,000 31.12.98 By Balance c/d 12,78,000
13,58,000 13,58,000

Dr. Provision or Depreciation Account Cr.

Date Particulars Rs. Date Particulars Rs.
31.12.06 To Balance c/d 1,20,000 31.12.06 By Profit & Loss A/c 1,20,000

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31.12.97 To Balance c/d 2,40,000
fre 01.01.97 By Balance b/d 1,20,000
31.12.97 By Profit & Loss A/c 1,20,000
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2,40,000 2,40,000
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01.07.98 To Asset Disposal A/c 20,000 01.01.98 By Balance b/d 2,40,000

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31.12.98 To Balance c/d 3,43,900 31.12.98 By Profit & Loss A/c 1,23,900
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3,63,900 3,63,900
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Dr. Asset Disposal Account Cr.

Date Particulars Rs. Date Particulars Rs.
01.07.98 To Machinery A/c 80,000 01.07.98 By Provision for
Depreciation A/c 20,000
By Bank A/c 45,000
By Profit & Loss A/c 15,000
(Loss on sale)
80,000 80,000
Working Notes :
(i) Calculation of Loss on Sale of Machinery Rs.
A. Original Cost as on 1.1.06 80,000
B. Less : Depreciation @ 10% p.a. on Rs. 80,000 8,000
C. Balance as on 1.1.97 (A–B) 72,000
D. Less : Depreciation @ 10% p.a. on Rs. 80,000 8,000
E. Balance as on 1.1.98 (C–D) 64,000

(24)
 F. Less : Depreciation @ 10% p.a. on Rs. 80,000 for 6 months 4,000
G. Balance as on 1.7.98 (E–F) 60,000
H. Less: Sale proceeds 45,000
I. Loss on Sale (G–H) 15,000
(ii) Calculation of Depreciation for 1998
(a) On Rs. 11,20,000 for 1 year 1,12,000
(b) On Rs. 60,000 for 1/2 year 4,000
(c) On Rs. 1,58,000 for 1/2 year 7,900
1,23,900
Illustration 7 : Rahul Ltd. which depreciates the machines @ 25% p.a. on the reducing
balance method, provides you the following particulars :
Cost on 31.12.95 Rs. 2,46,000. Provision for Depreciation (on

in
31.12.95) Rs. 1,24,000. No amounts being charged in the year of sale but full charge is
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being made for the years during which addition is made. On 1.7.97, one new machine
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was purchased for Rs. 24,000 and old machinery purchased on 1.7.1994 for Rs. 20,000
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was discarded but could not be sold immediately. However, it was expected to realise
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Rs. 5,000 for same. Prepare (a) machinery Account, (b) Provision for Depreciation
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Account, and (c) Machinery Disposal Account for the years 1996 and 1997.
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Solution
Dr. Machinery Account Cr.
Date Particulars Rs. Date Particulars Rs.
01.01.96 To Balance b/d 2,46,000 31.12.96 By Balance c/d 2,46,000
01.01.97 To Balance b/d 2,46,000 01.07.97 By Machinery
01.07.97 To Bank A/c 24,000 Disposal A/c 20,000
31.12.97 By Balance c/d 2,50,000
2,70,000 2,70,000

Dr. Provision for Depreciation Account Cr.

Date Particulars Rs. Date Particulars Rs.
31.12.96 To Balance c/d 1,54,500 01.01.96 By Balance b/d 1,24,000
31.12.96 By Depreciation A/c
[25% of (Rs. 2,46,000)
- Rs. 1,24,000] 30,500
1,54,500 1,54,500
(25)
01.07.97 To Machinery 11,563 01.01.97 By Balance b/d 1,54,500
Disposal a/c 31.12.97 By Depreciation
31.12.97 By Balance c/d 1,69,703 [25% of (Rs. 2,50,000-
Rs. 1,54,500+Rs.11,563] 26,766
1,81,266 1,81,266

Dr. Machinery Disposal Account Cr.

Date Particulars Rs. Date Particulars Rs.
01.07.97 To Machinery 20,000 01.07.97 By Provision for
Depreciation A/c 11,563
By P&L A/c (Loss)
(Purchase concept) 3,437
By Balance c/d 5,000

in
20,000 20,000
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Working Note : Calculation of Depreciation provided on Machine discarded

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Book Accumulated
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Value Depreciation
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Rs. Rs.
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A. Original Cost 20,000 –

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B. Less : Depreciation for 1994 5,000 5,000

C. Book value on 1.1.1995 15,000
D. Less : Depreciation for 1995 3,750 3,750
E. Book Value on 1.1.1996 11,250
F. Less : Depreciation for 1996 2,813 2,813
8,437 11,563

7.7 SALE OF AN ASSET

An enterprise may sell an asset either because of obsolescence or inadequacy or
even for other reasons. In case an asset is sold during the course of the year, the
amount realised should be credited to the Asset Account. The amount of
depreciation for the period of which the asset has been used should be written off
in the usual manner. Any balance in the Asset Account will represent profit or loss
on disposal of the asset. This balance in the Asset Account should be transferred to
the profit and loss account.

(26)
Illustration 8: A company purchased a machinery costing Rs. 60,000 on
1.4.2000. The accounting year of the company ends on 31st December every year.
The company further purchased machinery on 1st October, 2000 costing Rs. 40,000.
On 1st January, 2002, one-third of the machinery which was installed on 1.4.2000,
became obsolete and was sold for Rs. 5000. Show how the machinery account would
appear in the books of the company. The depreciation is to be charged at 10% p.a.
on written down value method.
Machinery Account
Date Particulars Rs. Date Particulars Rs.
1.4.00 To Bank 60000 31.12.00 By Depreciation 45000
Oct. 1 To Bank 40000 on Rs. 60000 for
9 month on Rs.

in
40000 for 3 month 1000
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Dec.31 By Balance c/d 94500
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100000 100000
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1.1.01 To Balance b/d 94500 31.12.01 By Depreciation 9450

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on Rs. 94500 for

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1 year
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Dec. 31 By Balance c/d 85050

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94500 94500
1.1.02 To Balance b/d 85050 31.12.01 By Bank (sale pro) 5000
Jan. 1 By Profit Loss
account loss on sale
(16650-5000) 11650
Dec. 31 By Depreciation 6840
Dec. 31 By Balance c/d 61560
85050 85050

*Total written down value as on Jan. 1, 2002 85050

Less written down value of 1/3 of Machinery
sold (2000-(1500+1850) 16650
68400
Depreciation at 10% on Rs. 68400 6840

(27)
Depreciation on an asset purchased in the course of a year
Two alternatives are available regarding charging of depreciation on assets which
have been bought during the course of an accounting year. These are as follows :
1. Depreciation may be charged only for the part of the year for which the
asset could have been made available for use after purchase of it.
2. Depreciation may be charged for the full year irrespective of the date of
purchase. It will be ascertained at the given rate of depreciation. The Income tax
authorities also permit this.
Important Note : If there is no specific instruction in the question about depreciation,
the students should give the assumption made by them in this regard. But, in case
rate of depreciation has been given as a certain percentage per annum and the

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purchasing date has been given, it is suggested to calculate depreciation only for
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the part of the year for which the asset has been made available for its use.
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7.8 CHANGE OF DEPRECIATION METHOD

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To ensure comparability of results from year to year, it is essential that once a

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method of depreciation is selected by the management it should be followed

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consistently. However, sometimes a change in the method of depreciation may be

required. The change may be required either because of statutory compulsion or
required by an accounting standard or change would result in more appropriate
presentational the financial statements.
The change in the method of depreciation may be desired from the current year
onwards. In such a case, depreciation will be charged according to the new method
from the current year.
Illustration : 9 Om Ltd. purchased a computer for Rs. 50,000 on 1.1.2003. It has
five years life and a salvage value of Rs. 5,000. Depreciation was provided on straight
line basis. With effect from 1.1.2005, the company decided to change the method
of depreciation to Diminishing Balance method @20% p.a. Prepare computer
account from 2003 to 2006. Assume, the company prepare final accounts on 31st
December every year.

(28)
 Computer Account
Date Particulars Rs. Date Particulars Rs.
1.1.03 To Cash A/c 50000 31.12.03 By Depreciation 9000
" By Balance c/d 41000
50000 50000
1.1.04 To Balance b/d 41000 31.12.04 By Depreciation 9000
" By Balance c/d 32000
41000 41000
1.1.05 To Balance b/d 32000 31.12.05 By Depreciation 6400
" By Balance c/d 25600
32000 32000
1.1.06 To Balance b/d 25600 31.12.06 By Depreciation 5120

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" freBy Balance c/d 20480
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25600 25600
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Working Notes :
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1) Depreciation on straight line basis = Rs. 50000 -5000 = Rs. 9000

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2) Depreciation on written down value basis during 2005

(Book value Rs. 32000) = Rs 32000 x 20 = Rs. 6400
100
Change in the Method of Depreciation from a back date
Sometimes a change in the method of depreciation is effected retrospectively. In
such a case, the following steps are required :
(i) Find out the depreciation which has already been charged according to the
old method or at the old rate.
(ii) Compute the amount of depreciation that is to be charged according to the
new method form the back date upto the end of the previous year.
(iii) Find the difference, if any, under (i) and (ii) mentioned above.
(iv) In the current year in addition to the depreciation for the current year charge
also the difference found under step (iii).
(29)
Illustration 10: Taking the facts as in the illustration 7, prepare computer account
for 2005 and 2006, if the firm decides on 1.1.2005 to charge depreciation according
to Diminishing Balance method. Assume the change in the depreciation policy is
effected by the firm since the date of purchase.
Solution :
Computer Account
Date Particulars Rs. Date Particulars Rs.
1.1.05 To Balance 32000 31.12.05 By Depreciation
Difference for Nil
earlier year (1)
current year (2) 6400

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Dec. 31 By Balance c/d
fre 25600
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32000 32000
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1.1.06 To Balance 25600 31.12.06 By Depreciation 5150

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" By Balance 20480

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s:

25600 25600
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Working Notes :
1) 1.1.2003 Acquisition cost of computer 50000
31.12.03 Depreciation @ 20% p.a. on 50000 10000

1.1.04 Balance 40000

31.12.04 Depreciation @ 20% on Rs/ 4000 8000

Depreciation according to Diminishing

Balance 18000
method for the year 2003 and 2004 (10,000+8,000)
Less Depreciation according to straight line basis 18000
(9000+9000) Nil
Difference
2) 1.195 Balance 32000

(30)
 31.12.05 Depreciation @ 20% p.a. on 32000 6400
1.1.06 Balance 25600
31.12.06 Depreciation @ 20% on 25600 5120
31.12.06 Balance 20480

7.9 SUMMARY
Depreciation is a gradual reduction in the economic value of an asset from any
cause. The depreciation occurs because of constant use, passage of time, depletion,
obsolescence, accidents and permanent fall in the market value. The need for
providing depreciation arises to ascertain the profit or losses, to show the assets at
its reasonable value, for replacement of assets, to reduce income tax, etc. The various
methods of allocating depreciation include : fixed instalment methods, machine
hour rate method, diminishing balance method, sum of years digits method, annuity

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method, depreciation fund method, insurance policy method and depletion method.
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The straight line method is very suitable particularly in case of those assets which
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get depreciated more on account of expire of period i.e. lease hold properties,
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patents etc. Diminishing balance method is suitable in those cases where the
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receipts are expected to decline as the asset gets older and, it is believed that the
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allocation of depreciation ought to be related to the pattern of assets expected

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receipts. In case an asset is sold during the course of the year, the amount realised
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should be credited to the Asset Account. The amount of depreciation for the period
of which the asset has been used should be written off in the usual manner. Any
balance in the Asset Account will represent profit or loss on disposal of the asset.
7.10 KEYWORDS
Depreciation: It is the gradual and permanent decrease in the value of an asset
from any cause.
Depletion: Depletion refers to the reduction in the workable quantity of a wasting
asset.
Obsolescence: It represents loss in the value of an asset on account of its becoming
obsolete or out of date.
Fixed instalment method: Under this method, the assets are depreciated at a fixed
amount throughout its life span.
Written down value method: Under this method, the depreciation is calculated
every year on the diminishing value of the asset.

(31)
7.11 SELF ASSESSMENT QUESTIONS
1. Why is it necessary to calculate depreciation ? Discuss various factors which
are considered for calculating depreciation
2. How do the matching principle and going concern concept apply to
depreciation.
3. Distinguish between the following :
(a) Straight line method and diminishing balance method.
(b) Annuity method and depreciation Fund method.
(c) Depreciation and depletion
4. Explain the circumstances under which different methods of depreciation
can be employed.
5. Discuss the advantages and disadvantage of Insurance Policy Method and
Straight Line Methods.

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6. What is 'sum of the year-digits method' to depreciation ? In what way does it
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differ from sinking fund method of depreciation
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7. A firm purchases a plant for a sum of Rs. 10,000 on 1st January 2000.
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Installation charges are Rs. 2,000. Plant is estimated to have a scrap value of Rs.
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1,000 at the end of its useful life of five years. You are required to prepare the
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plant account for five years charging depreciation according to Straight Line Method
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8. A transport company purchases 5 trucks at Rs. 2,00,000 each on April 1, 2006.

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The company writes off depreciation @ 20% per annum on original cost and observes
calendar year as its accounting year. On October 1, 1998 one of the trucks is involved
in an accident and is completely destroyed. Insurance company pays Rs. 90,000 in full
settlement of claim. On the same day, the company purchases a used truck for Rs.
1,00,000 and spends Rs. 20,000 on its overhauling. Prepare Truck Account for the
three years ending on 31st December 2005.
[Loss on one truck Rs. 10,000, Book Value–Old trucks Rs. 3,60,000, New Truck Rs. 1,14,000].
9. A plant is purchased for Rs. 20,000. It is depreciated at 5% per annum on
reducing balance for five years when it becomes obsolete due to new method of
production and is scrapped. The scrap produces Rs. 5,385. Show the plant account
in the ledger.
(An Loss on sale Rs. 10,091; Depreciation 1st year Rs. 1,000; 2nd years Rs. 950;
3rd year Rs. 902; 4th year RS. 857; 5th year Rs. 815.)

(32)
10. The machinery account of a factory showed a balance of Rs. 1,90,000 on 1st
January 1998. 1st accounts were made up on 31st December each year and
depreciation is written off at 10% p.a. under the Diminishing Balance Method.
On 1st June 1998, New Machinery is acquired at a cost of Rs. 28,000 and
installation charges incurred in erecting the machines works out to Rs. 892 on the
same date. On 1st June 1998 a machine which had cost Rs. 6,000 on 1st January
2003 was sold for Rs. 750, another machine which had cost Rs. 600 on 1st January
2004, was scrapped on the same date and it realised nothing.
Write up plant and Machinery Account for the year 1998, allowing the same
rate of Depreciation as in the past calculating Depreciation to the nearest multiple
of a Rupee. (Ans. Loss on Sale Rs. 2,645, Loss on scrapping Rs. 377, Closing
Balance Rs. 1,94,665).
11. A company purchased a four years lease on January, 1, 1985 for Rs. 20,150.

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It is decided to provide for the replacement of the lease at the end of four years by
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setting up a Depreciation Fund. It is expected that investments will fetch interest at
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4 per cent. Sinking Fund tables show that to provide the requisite sum at 4 percent
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at the end of four years, an investment of Rs. 4,745.02 is required. Investments are
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made to the nearest rupee.

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On December 31, 1988, the investments are sold for Rs. 14,830 On 1st
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January, 1989, the same lease is renewed for a further period of 4 years by payment
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of Rs. 22,000.
Show journal entries and give the important ledger account to record the
above. (Ans. Amount credited to the profit and loss account at the end of December,
1988 Rs. 17,56)
12. Chillies Ltd, acquired a long-term lease of property on payment of Rs. 60,000.
A leasehold Redemption Policy was taken out on which an annual premium of Rs.
1,440 was payable. The surender value of the policy on 31st March, 1997 was Rs.
12,896 to which amount the policy account stood adjusted. Next premium was
paid on 20th December, 1997 and the surrender value on 31st March, 1978 was Rs.
14,444.
(i) Show the Redemption fund account and the policy account for the year ended
31st March, 1998
(ii) Assuming that of maturity, a sum of Rs. 60,100 was received and the balance
in policy account then stood at Rs. 59,920 give the ledger accounts showing the
entries necessary to close the accounts concerned. (Ans. (i) Balance at the end of
1998 Fund A/c & Policy A/c Rs. 14,444 (ii) Transfer to P & L a/c profit on maturity
Rs. 100). (33)