Depreciation Problems and Answers


Rajeev Mantya
Asked by Rajeev Mantya from India
   Depreciation Problem 1.
Special Points : (a) Depreciation under Fixed Instalment Method; (b) Assets purchased on different dates, (C) Sale of Asset, (d) Loss on Sale

B. Co. Purchased machinery as follows :

Date of Purchase Cost of Machine (Rs.)

1.4.2006 → 60,000
1.10.2006→ 40,000
1.7.2007 →20,000



On 1.1.2008 one-third of the machinery which was purchased on 1.4.2006 became obsolete and was sold for Rs. 6,000. The machinery was to be depreciated by Fixed Instalment Method at
10% p a.

Show how the Machinery Account would appear in the ledger of the Company for the years
2006. 2007 and 2008. Assume that the accounting year of the Company ends on 31st December
every year.

(Ans: Loss on sale Rs. 10,500; Annual Depreciation 2006 Rs. 5,500: 2007 Rs. 11,000; 2008 Rs.
10,000. Balance at Machinery Account on 31. 12.2008 Rs. 77,000)



Answer 1 

Rajeev Mantya! You have to calculate depreciation, loss on sale of machinery first before making machinery account. See, how to?


a) Calculation of Depreciation for 2006


i) 10% on 60000 for 9 months = 60000X 9/12 X 10/100 = 4500
ii) 10% on 40000 for 3 months = 40000 X 3/12 X 10/100 = 1000
--------------------------------------------------------------------
Total Depreciation of 2006 = 5500
--------------------------------------------------------------------


b) Calculation of Depreciation for 2007


i) 10% on 100000 for one year = 100000 X 10% = 10000
ii) 10% on 20000 for 6 months = 20000 X 6/12 X 10% = 1000
----------------------------------------------------------------------
Total Depreciation for 2007 = 11000
===============================================


c) Calculation of Depreciation for 2008


i) 10% on ( 60000 - 60000 X 1/3) for one year = 4000
ii) 10% on other machinery ( 40000 +20000) for one year = 6000
-------------------------------------------------------------------------
Total Depreciation for 2008 = 10000
================================================


d) Calculation of Loss on Sale of Machinery


Cost of Machinery on 1-4-2006 = 60000 X 1/3 = 20000
Less Depreciation 10 % for 2006 = 20000 X 9/12X 10% =  (-) 1500
Less Depreciation 10% for 2007= 20000 X 10% = (-) 2000
----------------------------------------------------------------------
Cost of Machinery on 1-4-2008 = 16500
Less Sale Value on 1-4-2008 =  6000
---------------------------------------------------------------------
Loss on Sale of Machinery = 10500
===============================================


Now, it is easy to make machinery account. It is real account and all purchasing of assets will debit and sale will credit in this account and balance will show in the asset side of balance sheet. 


Machinery Account


Date (Dr. ) Amount Date (Cr.) Amount
1-4-2006 Bank a/c- purchase 60000 31-12-2006 Depreciation a/c

5500
1-10-2006 Bank a/c- purchase 40000

31-12-2006
Balance c/d 94500

100000
100000


1-1-2007
Balance b/d 94500

31-12-2007


Depreciation a/c
11000
1-7-2007

Bank a/c- purchase
20000

31-12-2007


Balance c/d
103500


114500



114500


1-1-2008


Balance b/d
103500

1-1-2008


Bank a/c- Sale
6000


1-1-2008
Profit and loss account
-loss
10500


31-12-2008


Depreciation a/c
10000


31-12-2008


Balance c/d
77000
103500 103500


 Please wait for the answer of other depreciation problems. Soon, I will be update. 


Depreciation Problem 2.

Special Points : (a) Use of Provision for Depreciation Account, (b) Journal Entries, (c) Sale and Profit on
sale.

After Rs. 5,000 was provided for depreciation in the current year. the accumulated provision
for depreciation went up to Re. 50,000. The Machine concerned whose original cost had been
Rs. 55,000 was then sold as scrap for Rs. 20,000 (cash) and replaced thereafter by a new machine
costing Rs. 75,000. Give Journal entries to record the above transactions.
(Ans.: Profit on sale of scrap Rs.15000]


Depreciation Problem 3.

Special Points (a) Depreciation under diminishing balance method, (b) Purchase of Assets on different
dates, (c) Sale and profit or loss on sale.

Q Ltd, purchased on 1st January, 2008 a machine for Rs. 10,000. On 1.7.08 it again purchased
another machine for Rs. 5,000. On 1.7.09 the machine purchased on 1.1.2008 was sold for Rs.
4,000. On 1.7.2010 a new machine was purchased for Rs. 12,000. On the same date the machine
purchased on 1.7.2008 was sold for Rs. 4,200.
Depreciation was provided at 10% p.a. on the written down value every year. Show the Machinery
Account .
(Ans.: Loss on sale in 2009= Rs.. 4,550 Profit on sale in 2010 = Rs. 139)

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