Question

On 1.1.2010 an asset was purchased for 35000. The estimated life of the asset is
after which its breakup value will be 5000 only. Prepare the asset account for the first three
years, by straight line method assuming that the books are closed on 31st December
​

Answer 1

Date Particulars Amount (Rs) Date Particulars Amount (Rs)
2007 2008
Apr. 01 Bank A/c (1,90,000 + 10,000) 2,00,000 Mar. 31 Depreciation A/c 25,000
Mar. 31 Balance c/d 1,75,000
2,00,000 2,00,000
2008 2009
Apr. 01 Balance b/d 1,75,000 Mar. 31 Depreciation A/c 25,000
Mar. 31 Balance c/d 1,50,000
1,75,000 1,75,000
2009 2010
Apr. 01 Balance b/d 1,50,000 Mar. 31 Depreciation A/c 25,000
Mar. 31 Balance c/d 1,25,000
1,50,000 1,50,000
2010 2011
Apr. 01 Balance b/d 1,25,000 Mar. 31 Depreciation A/c 25,000
Mar. 31 Balance c/d 1,00,000
1,25,000 1,25,000


Depreciation Account
Dr. Cr.
Date Particulars Amount (Rs) Date Particulars Amount (Rs)
2008 2008
Mar. 31 Machinery A/c 25,000 Mar. 31 Profit and Loss A/c 25,000
25,000 25,000
2009 2009
Mar. 31 Machinery A/c 25,000 Mar. 31 Profit and Loss A/c 25,000
25,000 25,000
2010 2010
Mar. 31 Machinery A/c 25,000 Mar. 31 Profit and Loss A/c 25,000
25,000 25,000
2011 2011
Mar. 31 Machinery A/c 25,000 Mar. 31 Profit and Loss A/c 25,000
25,000 25,000


Working Note: Calculation of Depreciation

Answer 2

Depreciation calculation.

The straight line method is a common method for calculating depreciation. It assumes that the asset depreciates evenly over its useful life.

To calculate the depreciation for two years using the straight line method, we need to first determine the annual depreciation.

Annual Depreciation = (Cost of Machine - Breakup Value) / Useful Life

Annual Depreciation = (35,000 - 5,000) / 5 = 6,000

So, the annual depreciation is Rs 6,000.

Now, to calculate the depreciation for two years, we can simply multiply the annual depreciation by the number of years:

Depreciation for 1st year = Rs 6,000

Depreciation for 2nd year = Rs 6,000

Therefore, the total depreciation for the two years is Rs 12,000.

To calculate the machinery amount at the end of the second year, we can subtract the total depreciation from the original cost of the machine:

Machinery amount at the end of second year = Cost of machine - Total depreciation

= Rs 35,000 - Rs 12,000

= Rs 23,000

Assuming the books close on 31st March, the machinery amount at the end of the second year would be the closing value for the year.