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Depreciation Problems and Answers


   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)

COMMENTS

: 13
  1. Excellent Workings

    ReplyDelete
  2. Workkng is really v. Good and easy to understand

    ReplyDelete
  3. Isn't that the depreciation for 2007 for (1) is (60000-4500)*0.1 and (40000-1000)*0.1 ? Because the value has depreciated in 2006, so 60000-4500 and 40000-1000 then times the depreciation rate.

    ReplyDelete
    Replies
    1. There the depreciation method is straight line /original cost

      So there the amount of depreciation is fixed for every year

      Delete
  4. please if a machine has 400,000 cost prize,18000 salvage value and useful life of 10 years but then needs 5000 for dismantling.. how do I solve it using double decline method

    ReplyDelete
  5. The dismantling should be treated same as installation cost but it has the opposite effect, without dismantling cost the Machine will still function so it should be capitalized
    Therefore the solution for that problem is as follows:
    * Double Declining rate = 1/10 * 2 = 0.2 = 20%
    * Machine cost = 405,000
    1 st Year = 405,000 * 20% =81,000 (Dep expenses )
    2 nd Year = (405,000 - 81,000 ) * 20% = 64,800
    and the calculation continue until the NBV Value reach the Salvage value.

    ReplyDelete
  6. A machine was purchased on 1.1.14 for Rs.38800 and Rs.1200 were spent on its erection.On1.7.14,additional machinery costing Rs.20000 was acquired.On 1.7.16 further additional machinery was purchased at a cost of Rs.30000.Depreciation Was provided annually on 31 December at the rate of 10% p.a.,on the original cost of the asset.Prepare the Machinery Account from 2014 to 2016

    ReplyDelete
  7. Pls send me your problems and answers in my mail

    ReplyDelete
  8. Kindly solve this, question
    Q. A firm of manufactures, whose books are closed on 31th Dec, purchased machinery for $ 50000 on 15 Jan 1980. Additional Machinery was acquired for $ 10000 on 1st july 1981 and for $ 16466 on 14th April 1984. Certain machinery which cost $ 10000 was sold for $5000 on 30th june 1983.
    give the machinery account for five years writing Off depreciation at 10 percent on the written down value,

    ReplyDelete
  9. Send me your questions and answers in my email

    ReplyDelete
  10. The profit of my solution is 353. I didn't know that how is your profit 139.🤔

    ReplyDelete
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Accounting Education: Depreciation Problems and Answers
Depreciation Problems and Answers
Accounting Education
https://www.svtuition.org/2011/08/depreciation-problems-and-answers.html
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