Question

a machine was purchased on 1st july 1983 at a cost of Rs.14000 and Rs.1000 was spent on installation . the depreciation is written off at 10% on the original cost every year . the books were closed on 31st december each year. the machine was sold for Rs.9500 on 31st march 1986 . show the machinery account for all the years

Answer 1

GIVEN: The cost of the machine = Rs 14,000; the installation charge =  Rs 1,000

TO FIND: Value of machinery

SOLUTION :

• Depreciation is the normal wear and tear in the value of fixed assets.

• Machinery is purchased on 1st July 1983 for 14,000 and installation charge is 1,000,  so total worth of machinery is 15,000.

Total Cost of machine = 14,000 + 1,000

                                     = 15,000

Depreciation is to be written off on the original cost every year which means that depreciation will be charged every year on the original cost.

Depreciation for the year 1983

15,000 × $\frac{10}{100}$ × $\frac{6}{12}$

= 750

Value of the machinery after depreciation = 15,000 - 750

                                                                       = 14,250

Depreciation for the year 1984

A method of depreciation is the Original Cost Method which means that machinery will depreciate at its original cost.

15,000 × $\frac{10}{100}$

= 1,500

Value of machinery after depreciation = 14,250  - 1,500

                                                                = 12,750

Depreciation for the year 1985

Depreciation will be 1,500

Value of machinery after depreciation = 12,750 - 1,500

                                                                = 11,250

Depreciation for the year 1986

As machinery is getting sold out on 31 March so depreciation will be charged for 3 months only.

15,000 × $\frac{10}{100}$ × $\frac{3}{12}$

= 375

Value of machinery after depreciation = 11,250 - 375

                                                               = 10,875

As machinery is sold out on 31 March 1986 for 95000.

Machinery cost on this date after depreciation is 10,875 so it is being sold out for a loss.

Loss on sale of machinery = 10,875 - 9500

                                            = 1,375

Loss on the sale of machinery is 1,375.