Mr. Ashok purchased a machine on hire purchase system from Bharath Motors on 1.1.1996. The cash price of the machine was Rs. 74,500 and the payment was to be made as follows: On signing of the agreement Rs. 20,000 and the balance in 3 installments of Rs. 20,000 each at the end of each year. 5% interest is charged by the vendor. Mr. Ashok has decided to write off 10% depreciation annually on the diminishing balance method. Pass the necessary journal entries in the books of Mr. Ashok.
Answers
Explanation:
Answer
Dr Machinery Account Cr
Date Particulars JF Amt. (Rs) Date Particulars JF Amt. (Rs)
2000 Jul 1 To Bank A/c 1,20,000 2000 Dec 31 By Depreciation A/c 4,500
Dec 31 By Balance c/d 1,15,500
1,20,000 1,20,000
2001 Jan 1 To Balance b/d 1,15,500 2001 Dec 31 By Depreciation A/c 9,000
Dec 31 By Balance c/d 1,06,500
1,15,500 1,15,500
2002 Jan 1 To Balance b/d 1,06,500 2002 Dec 31 By Depreciation A/c 9,000
Dec 31 By Balance c/d 97,500
1,06,500 1,06,500
2003 Jan 1 To Balance b/d 97,500
Dr Depreciation Account Cr
Date Particulars JF Amt. (Rs) Date Particulars JF Amt (Rs)
2000 Dec 31 To Machinery A/c
4,500 2000 Dec 31 By Profit & Loss A/c 4,500
4,500 4,500
2001 Dec 31 To Machinery A/c 9,000 2001 Dec 31 By Profit & Loss A/c 9,000
9,000 9,000
2002 Dec 31 To Machinery A/c 9,000 2002 Dec 31 By Profit & Loss A/c 9,000
9,000 9,000
Working Note
Computation of Annual Amount of Depreciation =
12
(1,08,000+12,000−12,000)
=9,000
For the first year, machine has been used for half year that's why half depreciation has been charged i.e., Rs 4,500.