The book of the firm shows the cost of a machinery in use as on 01.04.2019 was ₹2,50,000 against which depreciation provision stood at ₹ 1,20,000 on that date, the firm provides 10% depreciation on written down value basis. On 31.12.2019 two machines costing ₹15,000 and ₹13,000 respectively, both purchased on 01.10.2016 has to be discarded because of damage and had to be replaced by two new machineris costing ₹21,000 and ₹15,000 respectively. One of the discarded machines was sold for ₹8,000 and the other it was expected that ₹4,000 would be realised. Show Machinery A/c, Provision for Depreciation a/c and Machinery disposal a/c for the year ending 31.03.2020.
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Answer:
The book of the firm shows the cost of a machinery in use as on 01.04.2019 was ₹2,50,000 against which depreciation provision stood at ₹ 1,20,000 on that date, the firm provides 10% depreciation on written down value basis. On 31.12.2019 two machines costing ₹15,000 and ₹13,000 respectively, both purchased on 01.10.2016 has to be discarded because of damage and had to be replaced by two new machineris costing ₹21,000 and ₹15,000 respectively. One of the discarded machines was sold for ₹8,000 and the other it was expected that ₹4,000 would be realised. Show Machinery A/c, Provision for Depreciation a/c and Machinery disposal a/c for the year ending 31.03.2020.
Explanation:
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Answer:
If Provision for Depreciation Account is maintained, credit balance of the Provision for Depreciation Account is transferred to the credit side of the Asset Account. The balance in the Asset Account will show gain (profit) or loss on sale of the asset, it is transferred to the Profit and Loss Account. In this case, the solution to the pervious illustration will be as follows:
