DEPRECIATION

Illustration 1 (Journal entries)

XYZ Co. purchased Plant for ₹ 75,000 on 1 st October 2016. New Plant was purchased on 1 st April 2018 for ₹
50,000.

Depreciation is charged at 12% p.a. under Fixed Installment Method on 31 st March every year.

Show necessary journal entries and necessary ledger accounts for the years 2016-17, 2017-18 and 2018-19
when-

(a) Provision for Depreciation Account is not maintained.

Illustration 2

Radhika traders purchased office furniture on 1st October, 2016 for Rs 46,000 and spent ₹ 16,000 for its
fixation.
The estimated life of the furniture is 10 years and the estimated scrap value at the end of its life would be
₹ 12,000. The entire furniture was sold for ₹ 47,000 on 1 st October 2019.
Show Furniture Account and Depreciation Account for the years 2016-17, 2017-18, 2018-19 and 2019-20
assuming that the accounts were closed on 31st march, every year.

Illustration 3 (WDV)

ABC Trading Co. Calcutta purchased Furniture on 1 st April 2015 for ₹ 25, 000. In the same year additional
furniture was purchased for ₹ 10, 000 on 1 st October 2015. On 1st October 2016, the Furniture purchased on 1st
April, 2015 was sold for ₹ 15,000 and on the same date new Furniture was purchased for ₹ 12, 000.The
company charge depreciation @ 8% p.a. on Diminishing Balance Method. Prepare Furniture Account for 2015-
16, 2016-17 & 2017-18, assuming that the accounting year closes on 31 st March every year.

Illustration 4 (PFD Account + SLM)

On 1st April 2017 a firm purchased machinery for ₹ 2,00,000. On 1 st October in the same accounting year,
additional machinery costing ₹ 1,00,000 was purchased. On 1 st October, 2018, the machinery purchased on 1 st
April, 2017, having become obsolete, was sold off for ₹ 90,000. On 1 st October, 2019, new machinery was
purchased for ₹ 2,50,000 while the machinery purchased on 1 st October, 2017 was sold for ₹ 85,000 on the
same day.

The firm provides depreciation on its machinery @10% p.a. on original cost on 31 st March every year.

Show Machinery Account, Provision for Depreciation Account, and Depreciation Account for the period of
three years ending 31st March 2020.

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 DEPRECIATION
Illustration 5 (PFD Account + SLM, opening balances given)

On 1st April, 2019 following balances appeared in the books of XYZ Traders

Machinery A/c ₹ 400,000

Provision for Depreciation ₹ 160,000

On the above date they decided to sell the Machinery for ₹ 100,000 which was purchased on 1 st April 2016 for
₹ 150,000. The firm provides depreciation on 31 st March every year @10% p.a. under SLM method. Show
Machinery A/c and Provision for Depreciation A/c as on 31 March 2020.

Illustration 6 (Change of method, prospective)

On 1st October 2017, a company purchased a Plant for ₹ 20,000. Depreciation was provided @ 10% p.a. on the
Straight Line Method on 31st March every year. With effect from 01.04.2019, the company decided to change
the method of depreciation to the Diminishing Balance method @ 15% p.a. On 01.10.2020, the plant was sold
for ₹ 12,000. Prepare a Plant Account from 2017-18 to 2020-21.

Illustration 7 (Change of method)(HW)

A firm purchased a plant for ₹ 10, 000 on 1.1.2015. It charged depreciation at the rate of 10% p.a. according to
the fixed installment method. At the end of 2018, the firm decided to change the method of depreciation from
the fixed installment method to the diminishing balance method. The rate of depreciation was to be at the
rate of 12% p.a. You are required to prepare the Plant Account for the three years ending 31 st December 2018
and also show the depreciation account for the year 2018.

Illustration 8 (HW)

A firm purchased a truck for a sum of ₹ 100,000 on 1 st January 2009. It charged 20% depreciation p.a.
according to the Diminishing Balance Method. The truck was sold on 1 st July, 2010 for a sum of ₹ 80,000. You
are required to prepare the Truck Account, Provision for Depreciation Account for 2009 and 2010.

Illustration 9

On 1st April, 2008, a new plant was purchased for ₹ 40,000 and further, a sum of ₹ 2,000 was spent on its
erection. On 1st October, 2010, another plant was acquired for ₹ 25,000. Due to an accident on 3 rd January,
2011, the first plant was totally destroyed and the remnants were sold for ₹ 1, 000 only. On 21st January 2012,
a second hand plant was purchased for ₹30,000 and further, a sum of ₹ 5,000 was spent for bringing the same
to use on and from 15th March, 2012.

Depreciation has been provided at 15 p.a. on a WDV basis. It was a practice to provide depreciation for the full
year on all acquisition made at any time during any year and to ignore depreciation on any item sold or
disposed of during the year. None of the assets were insured. The accounts were closed annually on 31 st
March. Show the Plant Account and the Provision for Depreciation Account for all the four years.

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Illustration 10

A firm writes off 95% of the cost of its machine over 10 years following straight line method, leaving the
remaining 5% as estimated scrap value. Full depreciation is provided even if an asset is used only for a part of
the year.

On 1st April 2000, the original costs of the machine in possession were as follows:
₹

(i) Those purchased in 1988-89 or earlier 2,40,000

On 30th September, 2000 a machine purchased in 1988-89 for ₹ 20,000 was sold for ₹ 1,800. On
31st January, 2001 a machine purchased in 1995-96 for ₹ 30,000 was sold for ₹ 10, 000 and on the same date, a
new machine was purchased for ₹ 90, 000.

Show Machine Account and Provision for Depreciation Account for the year ended 31 st March, 2001.

Illustration 11 (HW)

M/s Green Channel purchased a second hand machinery on 1 st Jan. 2015 for Rs.1,60,000. Overhaul expenses
were Rs.40,000. Another machine was purchased for Rs.80,000 on 1 st July 2015.

On 1st July 2017 machine installed on 1st jan ’15 was sold for rs.100,000. Another machine amounted to Rs.
30000 was purchased and installed on 30 Sept. 2017.

Depre. Rate is 12% pa under WDV, pass journal entries for 2015-16,16-17 and 17-18.

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