22. Sahil traders purchased a second hand machinery on 1.4.16 for Rs 5,40,000 and
immediately spent Rs 40,000 on its repairs, Rs 20,000 were spent as its
transportation charges. It has a residual value of Rs 50,000 at the end of 10 years of
effective working life. This machinery was sold for Rs 3, 50,000 on 31.12.18.
Prepare machinery account and depreciation account assuming that the accounts are
closed on 31" March every year.
Answers
Answer:
Revenue Reserves:- The reserves created from revenue profits which arise out of the normal operating activities of the business and are otherwise freely available for distribution as dividend are known as revenue reserves.
Revenue reserves can be classified into the following two types of reserves:-
General Reserve:- As suggested by the name the reserves which are not created for a specific purpose is general reserve. It strengthens the financial position of the business. It is also known as free reserve or contingency reserve.Specific Reserve:- As suggested by the name, these are the reserves that are created for some specific purpose and can be utilized only for that purpose. e.g., Debenture Redemption Reserve, Workmen Compensation Fund, Investment Fluctuation Fund etc.Capital Reserve:- The reserves which are created out of capital profits and are not available for distribution as dividend are known as capital reserve. These reserves are kept to prepare the company for any unforeseen event like inflation, instability, need to expand the business. Capital reserves can be used for writing off capital losses or issue of bonus shares in case of a company. Capital profit treated as capital reserves e.g. Premium on issue of securities, Profit on redemption of debentures, Profit on reissue of forfeited shares etc.Dr.Cr.DateParticularsLFRs.DateParticularsLFRs.01.04.14To Bank A/c – Cost55,00031.03.15By Depreciation5,000By Balance c/d50,00055,00055,00001.04.15To Balance b/d50,00031.03.16By Depreciation A/c01.04.15To Bank A/c (f2)9,500(5,000+900)5,90031.03.16By Balance c/d53,60059,50059,50001.04.16To Balance b/d53,60031.03.17By Depreciation A/c5,90031.03.17By Balance c/d47,70053,60053,60001.04.17To Balance b/d47,70031.03.18By Depreciation A/c01.10.17To Bank A/c (f3)8,400(5,900+400)6,30031.03.18By Balance c/d49,80056,10056,10001.04.18To Balance b/d49,800
Explanation:
Depreciation = Total cost – scarp value / life of assets Total cost = Amount paid for machinery at the time of purchase. Scarp value = Sale value of machine at the time of sale Depreciation on 1st Furniture = cost 55,000 & scarp value 5,000 so deprication = Rs.(55,000–5,000)10" role="presentation" style="border: 0px; margin: 0px; padding: 0px; display: inline; font-style: normal; font-weight: normal; line-height: normal; font-size: 16px; text-indent: 0px; text-align: left; text-transform: none; letter-spacing: normal; word-spacing: normal; word-wrap: normal; white-space: nowrap; float: none; direction: ltr; max-width: none; max-height: none; min-width: 0px; min-height: 0px; position: relative;">Rs.(55,000–5,000)10Rs.(55,000–5,000)10 = Rs.5,000 per annum
Depreciation on 2nd Furniture = cost 9,500 & scarp value 500 so deprication = Rs.(9,500–500)10" role="presentation" style="border: 0px; margin: 0px; padding: 0px; display: inline; font-style: normal; font-weight: normal; line-height: normal; font-size: 16px; text-indent: 0px; text-align: left; text-transform: none; letter-spacing: normal; word-spacing: normal; word-wrap: normal; white-space: nowrap; float: none; direction: ltr; max-width: none; max-height: none; min-width: 0px; min-height: 0px; position: relative;">Rs.(9,500–500)10Rs.(9,500–500)10 = Rs.900 per annum
Depreciation on 3rd Furniture = cost 8400 & scarp value 400 so deprication = Rs.(8,400–400)10" role="presentation" style="border: 0px; margin: 0px; padding: 0px; display: inline; font-style: normal; font-weight: normal; line-height: normal; font-size: 16px; text-indent: 0px; text-align: left; text-transform: none; letter-spacing: normal; word-spacing: normal; word-wrap: normal; white-space: nowrap; float: none; direction: ltr; max-width: none; max-height: none; min-width: 0px; min-height: 0px; position: relative;">Rs.(8,400–400)10Rs.(8,400–400)10 = Rs.800 per annum
MACHINERY ACCOUNT
Dr.Cr.DateParticularsJ.F.Rs.DateParticularsJ.F.Rs.1.04.17To Bank A/c – Cost40,00031.3.18By Depreciation A/cTo Bank A/c – Repair10,000(5,000+1,000)6,00030.09.17To Bank A/c – Cost20,000By Balance c/d64,00070,00070,0001.4.18To Balance b/d64,000
Amount of Dep on Machine 1 = (40,000+10,000)*10% = 5,000 Amount of Dep on Machine 2 = 20,000* 10%*6/12 = 1,000 Repairs made on purchase of machinery is capitalised while repairs made afterwards will be debited to repairs account.
DrMachinery AccountCrDateParticularsJ.F.Amt (Rs.)Date