Question 2 (a)

Machinery and Provision for Depreciation accounts (diminishing balance)

6 marks

Time to write: About 12 minutes

From an older CBCS paper

Question

Question 2 (a) · 6 marks

Y bought a second-hand machinery on 1-2-2015 for ₹ 96,000, paying ₹ 14,400 to overhaul it and ₹ 9,600 to install it, the installation being completed by 31-3-2015. On its machinery, the company provides depreciation at 20% p.a. on the diminishing balance method from the date of putting it to use, and closes its books on 31 December each year. A repair was carried out on the machine on 1-10-2016, for which ₹ 6,000 were paid. The machine was sold on 31-10-2017 for ₹ 25,200, and ₹ 2,400 was paid as dismantling charges.

From 2015 to 2017, prepare the Machinery Account and the Provision for Depreciation on Machinery Account.

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

12 minfor 6 marks

Read from the question

prepare the Machinery AccountDraw the format first (heading, columns, dates), then fill in the figures from your working.

What the paper leaves open

The cost of the machine includes overhauling and installation; depreciation runs from 1-4-2015, the date it was put to use. The repair is revenue expenditure. Dismantling charges reduce the sale proceeds.

Write it in this order

Read the data; tick every adjustment as you plan it 1 min
1 Cost and depreciation 2 marks 3 min
2 Loss on sale 1 mark 2 min
3 Machinery Account 1½ marks 3 min
4 Provision for Depreciation Account 1½ marks 2 min
Check: every adjustment used, both sides agree, dates in 1 min

1234

Try it first. About 12 minutes for 6 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.

Cost. The cost of the machine includes the costs of bringing it to working condition: price 96,000 + overhaul 14,400 + installation 9,600 = ₹1,20,000 (paper note); the later repair (₹6,000) is revenue expenditure. Depreciation, the systematic allocation of the depreciable amount, runs at 20% on the diminishing balance from 1 April 2015, when the machine was put to use, and only for the part of a year it is used.

Year	Working	Depreciation (₹)	WDV (₹)
2015	1,20,000 × 20% × 9/12	18,000	1,02,000
2016	1,02,000 × 20%	20,400	81,600
2017 (to 31 Oct)	81,600 × 20% × 10/12	13,600	68,000

Sale: 25,200 − dismantling 2,400 = net ₹22,800; loss = 68,000 − 22,800 = ₹45,200.

Machinery Account

Date	Dr	₹	Date	Cr	₹
1.2.2015	To Bank (price 96,000, overhaul 14,400, installation 9,600)	1,20,000	31.12.2015	By Balance c/d	1,20,000
1.1.2016	To Balance b/d	1,20,000	31.12.2016	By Balance c/d	1,20,000
1.1.2017	To Balance b/d	1,20,000	31.10.2017	By Provision for Depreciation (transfer)	52,000
			31.10.2017	By Bank (sale 25,200 less dismantling 2,400)	22,800
			31.10.2017	By Profit and Loss (loss on sale)	45,200
		1,20,000			1,20,000

Provision for Depreciation on Machinery Account

Date	Dr	₹	Date	Cr	₹
31.12.2015	To Balance c/d	18,000	31.12.2015	By Depreciation	18,000
31.12.2016	To Balance c/d	38,400	1.1.2016	By Balance b/d	18,000
			31.12.2016	By Depreciation	20,400
		38,400			38,400
31.10.2017	To Machinery (transfer)	52,000	1.1.2017	By Balance b/d	38,400
			31.10.2017	By Depreciation	13,600
		52,000			52,000

Where the 6 marks sit

#	Component	Marks
1	Cost and depreciation	2
2	Loss on sale	1
3	Machinery Account	1.5
4	Provision for Depreciation Account	1.5
	Total	6

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