Question 3 OR (a)

Machine account with an exchange and a fire loss (WDV)

7 marks

Time to write: About 14 minutes

From an older CBCS paper

Question

Question 3 OR (a) · 7 marks

On 1st January 2010, Siddhi bought machine 'A' for ₹ 36,000 and machine 'B' for ₹ 24,000. On 1st January 2011 she bought a machine 'C' for ₹ 60,000. On 1st January 2012 machine 'A' went out of order, and a new machine costing ₹ 72,000 was bought after the old one was surrendered and cash ₹ 54,000 was paid. On 1st January 2013, machine 'C', bought on 1st January 2011, was destroyed by fire, and the insurance company paid only ₹ 36,000. Show the Machine account for 2010, 2011, 2012 and 2013, charging depreciation @ 10% p.a. on the W.D.V. method.

Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

14 minfor 7 marks

Read from the question

Show the Machine accountDraw the format first (heading, columns, dates), then fill in the figures from your working.

What the paper leaves open

Machine 'A' is surrendered against the new machine: the allowance for it is the new machine's cost less the cash paid (₹ 72,000 − ₹ 54,000 = ₹ 18,000), and the difference between that allowance and its written-down value is a loss or gain on exchange. The insurance shortfall on machine 'C' is a loss.

Write it in this order

Read the data; tick every adjustment as you plan it 1 min
1 Depreciation by WDV 2½ marks 4 min
2 Loss on exchange and loss by fire 2 marks 4 min
3 Machine Account 2½ marks 4 min
Check: every adjustment used, both sides agree, dates in 1 min

123

Try it first. About 14 minutes for 7 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Basis. Depreciation is the systematic allocation of an asset's depreciable amount, here at 10% on the written-down value. An asset disposed of on 1 January bears no depreciation that year. When an asset is discarded, the amount realised is credited to the asset account and the remaining amount written off as a loss; an item is derecognised on disposal, the gain or loss being the difference between the net proceeds and its carrying amount (AS-10). Machine A's allowance is the new machine's cost less the cash paid, 72,000 − 54,000 = ₹18,000 (paper note).

Written-down values

Machine	2010	2011	2012	2013
A (36,000)	dep 3,600 → 32,400	dep 3,240 → 29,160	exchanged 1.1.2012	—
B (24,000)	dep 2,400 → 21,600	dep 2,160 → 19,440	dep 1,944 → 17,496	dep 1,749.60 → 15,746.40
C (60,000, 2011)	—	dep 6,000 → 54,000	dep 5,400 → 48,600	destroyed 1.1.2013
New (72,000, 2012)	—	—	dep 7,200 → 64,800	dep 6,480 → 58,320

Machine A: WDV 29,160 − allowance 18,000 = loss on exchange ₹11,160.
Machine C: WDV 48,600 − insurance 36,000 = loss by fire ₹12,600.

Machine Account

Year	Dr	₹	Cr	₹
2010	To Bank (A and B)	60,000	By Depreciation	6,000
			By Balance c/d	54,000
		60,000		60,000
2011	To Balance b/d	54,000	By Depreciation (5,400 + 6,000)	11,400
	To Bank (C)	60,000	By Balance c/d	1,02,600
		1,14,000		1,14,000
2012	To Balance b/d	1,02,600	By Vendor (allowance for A)	18,000
	To Vendor (new machine; cash paid 54,000)	72,000	By Profit and Loss (loss on exchange)	11,160
			By Depreciation (1,944 + 5,400 + 7,200)	14,544
			By Balance c/d	1,30,896
		1,74,600		1,74,600
2013	To Balance b/d	1,30,896	By Insurance company (claim for C)	36,000
			By Profit and Loss (loss by fire)	12,600
			By Depreciation (1,749.60 + 6,480)	8,229.60
			By Balance c/d	74,066.40
		1,30,896		1,30,896

Closing balance = B 15,746.40 + new machine 58,320.

Where the 7 marks sit

#	Component	Marks
1	Depreciation by WDV	2.5
2	Loss on exchange and loss by fire	2
3	Machine Account	2.5
	Total	7

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