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
SOLUTION :
❒ Given :-
A van was purchased on 1st April, 2018, for Rs. 60,000 and Rs. 5,000 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.
A new van costing Rs. 1,70,000 was purchased on the same date,i.e., on 1st April 2020.
The rate of depreciation charged is 10% p.a. on the basis of straight line method and books are closed on 31st March every year.
❒ To Show :-
Van Account from 2018-19 to 2020-21
❒ Answer :-
★ Van Account is shown in the attachment ★
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WORKING NOTES :
❒ Calculation of Depreciation for the Van purchased on 1st April, 2018 :-
Here,
Cost of the Van = Rs. 60,000
Amount spent on repair and registration = Rs. 5,000
So,
✠ Total value of the Van = Rs. 60,000 + Rs. 5,000
➜ Total Value of the Van = Rs. 65,000
Again,
Rate of Depreciation = 10% p.a.
So,
⊚ Annual Amount of Depreciation = 10% of Rs. 65,000
➨ Annual Amount of Depreciation =
∴ Annual Amount of Depreciation = Rs. 6,500
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❒ Calculation of Depreciation for the Van purchased on 1st October, 2019 :-
Here,
Cost of the Van = Rs. 70,000
Rate of Depreciation = 10% p.a.
So,
⊚ Annual Amount of Depreciation = 10% of Rs. 70,000
➨ Annual Amount of Depreciation =
∴ Annual Amount of Depreciation = Rs. 7,000
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❒ Calculation of Depreciation for the Van purchased on 1st April, 2020 :-
Here,
Cost of the Van = Rs. 1,70,000
Rate of Depreciation = 10% p.a.
So,
⊚ Annual Amount of Depreciation = 10% of Rs. 1,70,000
➨ Annual Amount of Depreciation =
∴ Annual Amount of Depreciation = Rs. 17,000
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❒ Calculation of Profit/Loss on Sale of 1st Van :-
⊚ Book value of the 1st Van on 1st April, 2018 = Rs. 65,000
Less : Depreciation charged for the 1st year = 6,500
⊚ Book value of the 1st Van on 1st April, 2019 = 58,500
Less : Depreciation charged for the 2nd year = Rs. 6,500
⊚ Book Value of the 1st Van on 1st April, 2020 = Rs. 52,000
Less : Amount received on sale of 1st Van = Rs. 45,000
∴ Loss on Sale of 1st Van = Rs. 7,000
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EXPLANATION :
❍ For the year 2018-2019 :-
➺ 1st Van was purchased on 1st April, 2018 which total value was Rs. 65,000.
➺ On 31st March, 2019, depreciation charged on the 1st Van for 1st year was Rs. 6,500.
❍ For the year 2019-2020 :-
➺ 2nd Van was purchased on 1st October, 2019 which value was Rs. 70,000.
➺ On 31st March, 2020, depreciation charged on 1st Van for the 2nd year was Rs. 6,500.
➺ On 31st March, 2020, depreciation charged on 2nd Van for 6 months was Rs. 3,500.
❍ For the year 2020-2021 :-
➺ 1st Van (purchased on 1st April, 2018) was sold on 1st April, 2020 for Rs. 45,000.
➺ Loss incurred on the sale of 1st Van on 1st April, 2020 was Rs. 7,000.
➺ 3rd Van was purchased on 1st April, 2020 which value was Rs. 1,70,000.
➺ On 31st March, 2021, depreciation charged on 2nd Van for 2nd year was Rs. 7,000.
➺ On 31st March, 2021, depreciation charged on 3rd Van for 1st year was Rs. 17,000.