A van was purchased on 1st April, 2018, for Rs 60,000 and Rs 75,000 was spent on its repair and registration. On 1st October, 2019, another van was purchased for Rs 70,000. On 1st April, 2020, the first van purchased on 1st April, 2018 was sold for Rs 45,000 and a new van costing Rs 1,70,000 was purchased on the same date. Show the Van Account from 2018-19 to 2020-21 on the basis of Straight Line Method, if the rate of depreciation charged is 10% p.a. Assume that books are closed on 31st March every year.
Topic:- Depreciation
Answers
The depreciation Charged is Rs. 17,000
Loss on Sale of Van is Rs. 63,000
GIVEN: Sale and Purchase of Van that acts as a Fixed Asset to the business.
TO FIND: Depreciation Charged
SOLUTION:
As we are given in the question,
Opening value of van 1 = 1,35,000 [60,000 + 75,000]
Depreciation for the first year (van 1) = 13,500 [135000 * 10%]
Opening value of van 2 = 70,000
Depreciation for the second year (van 2) = 3,500 [ 70,000 * 10% * 6/12]
Opening value of van 3 = 1,70,000
Depreciation for the first year (van 3) = 17,000 [1,70,000 * 10%]
Loss on sale (van 01)
Opening value = 1,35,000
(-)Depreciation for the first year (van 1) = 13,500
Value at the beginning of second year = 121500
(-)Depreciation for the second year (van 2) = 13,500
(-) sale amount = 45,000
To loss on sale = 63,000
#SPJ2
Explanation:
To calculate the depreciation for the Van Account based on the straight-line method, we need to determine the annual depreciation expense.
First, let's calculate the useful life of the van:
Useful life of the van = Sale date - Purchase date
= 1st April 2020 - 1st April 2018
= 2 years
Next, calculate the annual depreciation expense:
Annual depreciation expense = (Cost of the van - Residual value) / Useful life
For the first van purchased in 2018:
Cost of the van = Rs 60,000 + Rs 75,000 (repair and registration) = Rs 1,35,000
Residual value = Rs 45,000 (sale price)
Useful life = 2 years
Annual depreciation expense = (1,35,000 - 45,000) / 2
= Rs 45,000
Now, let's calculate the depreciation for each financial year:
2018-19:
Opening balance: Rs 1,35,000
Depreciation: Rs 45,000
Closing balance: Rs 90,000 (1,35,000 - 45,000)
2019-20:
Opening balance: Rs 90,000
Depreciation: Rs 45,000
Closing balance: Rs 45,000 (90,000 - 45,000)
2020-21:
Opening balance: Rs 45,000
Depreciation: Rs 45,000
Closing balance: Rs 0 (45,000 - 45,000)
Van Account (2018-19 to 2020-21):
```
Financial Year | Opening Balance | Depreciation | Closing Balance
-------------------------------------------------------------------
2018-19 | Rs 1,35,000 | Rs 45,000 | Rs 90,000
2019-20 | Rs 90,000 | Rs 45,000 | Rs 45,000
2020-21 | Rs 45,000 | Rs 45,000 | Rs 0
```
Please note that the above calculations are based on the straight-line method and assume that depreciation is charged annually.