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Assignment On Insurance Policy Method Abd Sinking Fund Methods

The document provides instructions for 4 examples of accounting for lease agreements using either an insurance policy method or sinking/depreciation fund method. For the insurance policy method, the examples give details of lease purchases, insurance premiums, and lease renewals to be accounted for over 4 years. For the sinking/depreciation fund method, the examples give similar details over 3 year periods, including calculations to determine the required annual investments and proceeds from selling investments at the end of the periods. Journal entries and the relevant ledger accounts are to be prepared in accordance with the details provided for each example.

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gaurav prajapati
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122 views2 pages

Assignment On Insurance Policy Method Abd Sinking Fund Methods

The document provides instructions for 4 examples of accounting for lease agreements using either an insurance policy method or sinking/depreciation fund method. For the insurance policy method, the examples give details of lease purchases, insurance premiums, and lease renewals to be accounted for over 4 years. For the sinking/depreciation fund method, the examples give similar details over 3 year periods, including calculations to determine the required annual investments and proceeds from selling investments at the end of the periods. Journal entries and the relevant ledger accounts are to be prepared in accordance with the details provided for each example.

Uploaded by

gaurav prajapati
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Insurance Policy Method

1. On 1st January, 2013 a lease of premises is purchased for four years for Rs.1,00,000 and decided to
make provision for the replacement of the lease by means of an insurance policy purchased for an annual
premium of Rs.15,000. Write the journal entries and open the necessary ledger accounts for four years
assuming that the renewal of the lease costs Rs.1,10, 000 on 1-1-2017.

2. On 1st January, 2003 a lease of premises is purchased for four years for Rs. 70,000 and decided to
make provision for the replacement of the lease by means of an insurance policy purchased for an annual
premium of Rs.10,000. Write the journal entries and open the necessary ledger accounts for four years
assuming that the renewal of the lease costs Rs.1,00, 000 on 1-1-2007.

3. On 1st January, 2004 a lease of premises is purchased for four years for Rs.1,00,000 and decided to
make provision for the replacement of the lease by means of an insurance policy purchased for an annual
premium of Rs.25,000. Write the journal entries and open the necessary ledger accounts for four years
assuming that the renewal of the lease costs Rs.1,10, 000 on 1-1-2008.

4. On 1st January, 2013 a lease of premises is purchased for four years for Rs.2,50,000 and decided to
make provision for the replacement of the lease by means of an insurance policy purchased for an annual
premium of Rs.35,000. Write the journal entries and open the necessary ledger accounts for four years
assuming that the renewal of the lease costs Rs.1,10, 000 on 1-1-2017.

Sinking/ Depreciation Fund Method


1. A company purchased a 3 year lease on January 1st 2015 for Rs.55,000. It is decided to provide for the
replacement of lease at the end of 3 years by setting up a depreciation fund. It is expected that the
investment 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 at Rs. 7,500.12 is required every year. Investment made to the nearest
rupee. On 31st December, 2017 the investments were sold for Rs.21,250. On 1st January, 2018, the same
lease was reviewed for a further period of 3 years by payment of Rs.35,000

Show the journal entries and give the Lease Account, Depreciation Fund Account, Depreciation Fund
Investment Account and the New Lease Account.

2. A company purchased a 3 year lease on January 1st 2015 for Rs.65,000. It is decided to provide for the
replacement of lease at the end of 3 years by setting up a depreciation fund. It is expected that the
investment 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 at Rs. 7,520.32 is required every year. Investment made to the nearest
rupee. On 31st December, 2017 the investments were sold for Rs.23,500. On 1st January, 2018, the same
lease was reviewed for a further period of 3 years by payment of Rs.95,000

Show the journal entries and give the Lease Account, Depreciation Fund Account, Depreciation Fund
Investment Account and the New Lease Account.
3. A company purchased a 3 year lease on January 1st 2015 for Rs.75,000. It is decided to provide for the
replacement of lease at the end of 3 years by setting up a depreciation fund. It is expected that the
investment 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 at Rs. 7,570.42 is required every year. Investment made to the nearest
rupee. On 31st December, 2017 the investments were sold for Rs.25,500. On 1st January, 2018, the same
lease was reviewed for a further period of 3 years by payment of Rs.97,000

Show the journal entries and give the Lease Account, Depreciation Fund Account, Depreciation Fund
Investment Account and the New Lease Account.

4. A company purchased a 3 year lease on January 1st 2015 for Rs.85,000. It is decided to provide for the
replacement of lease at the end of 3 years by setting up a depreciation fund. It is expected that the
investment 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 at Rs. 7,520.32 is required every year. Investment made to the nearest
rupee. On 31st December, 2017 the investments were sold for Rs.26,000. On 1st January, 2018, the same
lease was reviewed for a further period of 3 years by payment of Rs.1,00,000

Show the journal entries and give the Lease Account, Depreciation Fund Account, Depreciation Fund
Investment Account and the New Lease Account.

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