Question

Question 10.
On 1st April, 2015, Shivam Enterprise purchased a second-hand machinery for ₹ 52,000 and spent ₹ 2,000 on cartage, ₹ 3,000 on unloading, ₹ 2,000 on installation and ₹ 1,000 as brokerage of the middle man. It was estimated that the machinery will have a scrap value of ₹ 6,000 at the end of its useful life, which is 10 years. On 31st December 2015, repairs and renewals amounted to ₹ 2,500 were paid. On 1st October, 2017, this machine was sold for ₹ 30,600 and an amount of ₹ 600 was paid as commission to an agent. Calculate the amount of annual depreciation and rate of depreciation. Also prepare the Machinery Account for first 3 years, assuming that firm follows financial year for accounting.

Answer 1

Answer:

On 1st April, 2015, Shivam Enterprise purchased a second-hand machinery for ₹ 52,000 and spent ₹ 2,000 on cartage, ₹ 3,000 on unloading, ₹ 2,000 on installation and ₹ 1,000 as brokerage of the middle man. It was estimated that the machinery will have a scrap value of ₹ 6,000 at the end of its useful life, which is 10 years. On 31st December 2015, repairs and renewals amounted to ₹ 2,500 were paid. On 1st October, 2017, this machine was sold for ₹ 30,600 and an amount of ₹ 600 was paid as commission to an agent. Calculate the amount of annual depreciation and rate of depreciation. Also prepare the Machinery Account for first 3 years, assuming that firm follows financial year for accounting.

Answer 2

Rate of depreciation is 9%

Explanation:

Depreciation amount = Machine cost - Scrap value of machine / Useful life of machine

= Rs 60,000 - Rs 6,000 / 10

= Rs 54,000 / 10

= Rs 5,400

Rate of depreciation = Depreciation amount / Cost of machine

= Rs 5,400 / Rs 60,000 × 100

= 9%

Working Note:

Cost of Machine = Rs 52,000 + Rs 2,000 + Rs 3,000+ Rs 2,000 + Rs 1,000

= Rs 60,000

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