Question

-On 1st April 2015 an asset was purchased for 36,000. It was decided to write off 10% depreciation
onginal cost each year. On 31st March, 2019, it was sold for 723,000. Prepare asset account assuming that
the books are closed every year on 31st March.​

Answer 1

Answer:

Refer to the attachment.

Note:

The amt. for which the machinery was sold in this question is ridiculously high. I guess it's a typo because a machine purchased for Rs. 36,000 can't be sold for Rs. 7,23,000 after 5 years. But, for the purpose of solving this question, I've taken the amounts as Rs. 36,000 and Rs. 7,23,000 because I don't have any other choice.

Explanation:

Depreciation = 10% of 36,000 = Rs. 3,600

The accounting till 1 April 2018 is pretty easy and that doesn't require explanation. Just subtract Rs. 3,600 from the balance left till 1 Apr 2018.

Then, on 31 March 2019, the machinery is to be sold.

First apply depreciation on 31 March 2019. Then debit the bank account by Rs. 7,23,000.

Now, the balance of machinery on 1 Apr 2018 was 25,200.

Subtract 3,600 of depreciation from that and you'll get Rs. 21,600.

Now, the book value of machinery on 31 March 2019 was Rs. 21,600 but it was sold for Rs. 7,23,000.

So, the profit on sale of machinery was Rs. 7,01,400.

Therefore, we credit the P/L A/c by Rs. 7,01,400.

The total of debit side is equal to the total of the credit side. Therefore, our calculation and acounting is correct.