Question 2 (b)

Machinery Account under AS 10, with a change of method

12 marks

Time to write: About 24 minutes
Topic: Depreciation, PPE and AS 10
Notes: Crux notes

Question

Question 2 (b) · 12 marks

On 1st April, 2021, XYZ Ltd. purchased a machinery for Rs. 4,32,000, and incurred 24,000 on its transportation and 24,000 on installation respectively. On 1st October of the same accounting year, additional machinery costing Rs. 2,40,000 was bought. On 1st October 2022, the machinery purchased on 1st April 2021, which had become obsolete, was sold off for Rs. 2,16,000. On 1st October 2023, a new Machinery was purchased for Rs. 6,00,000, while the Machinery purchased on 1st October 2021 was sold for Rs.2,04,000 on that same day. The XYZ Ltd. charges depreciation on its Machinery @ 10% p.a. on the machinery's written down value. On the 1st April 2024, the company's management decided that the method of deprecation be changed to SLM @ 15% p.a. The XYZ Ltd. closes its accounts on 31st March each year. Show the machinery account for the four financial years that end on 31.3.2025 in accordance with AS 10 for Property Plant and Equipment. (6+12=18)

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

24 minfor 12 marks

Read from the question

Show 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 first machinery includes its transportation and installation.
The change of method on 1st April 2024 is applied prospectively, as a change in an accounting estimate under AS 10: from that date the depreciation is 15% a year, straight line, on the carrying amount of the machinery at the date of the change.

Write it in this order

Workings as you go: each statement feeds the next.

Read the data; tick every adjustment as you plan it 2 min
1 Cost of the first machine and depreciation to 31.3.2022 2 marks 3 min
2 Sale of machine 1 depreciation to date, loss 3 marks 5 min
3 Sale of machine 2, purchase of machine 3 3 marks 5 min
4 Change of method from 1st April 2024, applied prospectively 2 marks 3 min
5 Ledger accounts, balanced each year 2 marks 3 min
Check: every adjustment used, both sides agree, dates in 3 min

12345

Try it first. About 24 minutes for 12 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 of the answer

Cost includes the costs directly attributable to bringing an asset to working condition, so the first machine's cost is 4,32,000 + 24,000 + 24,000 = ₹4,80,000.
Written down value at 10% p.a., charged for the months each machine is held in the year.
The change to the straight line method on 1st April 2024 is a change in an accounting estimate under AS 10, applied prospectively: from that date the carrying amount of the machinery left (₹5,70,000) is depreciated at 15% a year on the straight line, ₹85,500. Nothing earlier is recomputed.
A machine sold is depreciated to the date of sale; the difference between its written down value then and the sale proceeds is a profit or loss on sale, taken to the Profit and Loss Account.

Machinery Account

2021-22

Dr	₹	Cr	₹
To Bank (machine 1, bought 1.4.2021, with transport and installation)	4,80,000	By Depreciation (48,000 + 12,000)	60,000
To Bank (machine 2, bought 1.10.2021)	2,40,000	By Balance c/d (4,32,000 + 2,28,000)	6,60,000
	7,20,000		7,20,000

Dr	₹
To Bank (machine 1, bought 1.4.2021, with transport and installation)	4,80,000
To Bank (machine 2, bought 1.10.2021)	2,40,000
	7,20,000
Cr	₹
By Depreciation (48,000 + 12,000)	60,000
By Balance c/d (4,32,000 + 2,28,000)	6,60,000
	7,20,000

2022-23

Dr	₹	Cr	₹
To Balance b/d	6,60,000	By Bank (sale of machine 1, 1.10.2022)	2,16,000
		By Profit and Loss A/c (loss on sale)	1,94,400
		By Depreciation (21,600 + 22,800)	44,400
		By Balance c/d (machine 2)	2,05,200
	6,60,000		6,60,000

Dr	₹
To Balance b/d	6,60,000
	6,60,000
Cr	₹
By Bank (sale of machine 1, 1.10.2022)	2,16,000
By Profit and Loss A/c (loss on sale)	1,94,400
By Depreciation (21,600 + 22,800)	44,400
By Balance c/d (machine 2)	2,05,200
	6,60,000

2023-24

Dr	₹	Cr	₹
To Balance b/d	2,05,200	By Bank (sale of machine 2, 1.10.2023)	2,04,000
To Bank (machine 3, bought 1.10.2023)	6,00,000	By Depreciation (10,260 + 30,000)	40,260
To Profit and Loss A/c (profit on sale)	9,060	By Balance c/d (machine 3)	5,70,000
	8,14,260		8,14,260

Dr	₹
To Balance b/d	2,05,200
To Bank (machine 3, bought 1.10.2023)	6,00,000
To Profit and Loss A/c (profit on sale)	9,060
	8,14,260
Cr	₹
By Bank (sale of machine 2, 1.10.2023)	2,04,000
By Depreciation (10,260 + 30,000)	40,260
By Balance c/d (machine 3)	5,70,000
	8,14,260

2024-25 (straight line at 15% on the carrying amount at 1st April 2024)

Dr	₹	Cr	₹
To Balance b/d	5,70,000	By Depreciation (5,70,000 × 15%)	85,500
		By Balance c/d	4,84,500
	5,70,000		5,70,000

Dr	₹
To Balance b/d	5,70,000
	5,70,000
Cr	₹
By Depreciation (5,70,000 × 15%)	85,500
By Balance c/d	4,84,500
	5,70,000

Working notes

Machine 1: 4,80,000 − 10% (48,000) = 4,32,000 on 31.3.2022; six months to 1.10.2022 at 10% = 21,600, so 4,10,400 when sold for 2,16,000: loss ₹1,94,400.
Machine 2: six months in 2021-22, 12,000 → 2,28,000; 2022-23, 22,800 → 2,05,200; six months to 1.10.2023, 10,260 → 1,94,940 when sold for 2,04,000: profit ₹9,060.
Machine 3: six months in 2023-24, 30,000 → 5,70,000; 2024-25, straight line 85,500 → ₹4,84,500.

Where the 12 marks sit

#	Component	Marks
1	Cost of the first machine and depreciation to 31.3.2022	2
2	Sale of machine 1 (depreciation to date, loss)	3
3	Sale of machine 2, purchase of machine 3	3
4	Change of method from 1st April 2024, applied prospectively	2
5	Ledger accounts, balanced each year	2
	Total	12

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