Question 2 (b)
Machinery Account, straight line method, with a part sold
12 marks
- Time to write
- About 24 minutes
- Notes
- Crux notes
Question
Question 2 (b) · 12 marksA trader imported a machine on 1st July 2020 for ₹4,80,000, paid custom duty and freight ₹96,000 and incurred erection charges ₹1,44,000. Another machinery costing ₹2,40,000 was purchased from the local market on January 1, 2021. On 1st July 2022, one-third of the imported machine went out of order, and it was sold for ₹96,000. On that date, another machine was purchased for ₹1,20,000 to replace it. Depreciation is to be calculated at 20% per annum by the straight line method.
The accounts are closed on 31st December every year. Show the Machinery Account for 2020, 2021, and 2022.
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
Read from the question
- Show the Machinery AccountDraw the format first (heading, columns, dates), then fill in the figures from your working.
- calculatedFormula first, then the working, then the answer with its unit (₹, %, units).
What the paper leaves open
- The custom duty, freight and erection charges are part of the cost of the imported machine.
- One-third of the imported machine is sold, so one-third of its cost and of its depreciation to the date of sale is taken out.
- Depreciation is charged for the months each machine is held in the year.
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 imported machine and 2020 depreciation 2 marks 3 min
- 2 2021 account 2 marks 3 min
- 3 Part sold: depreciation to date and loss 4 marks 7 min
- 4 2022 depreciation and balance 4 marks 7 min
- Check: every adjustment used, both sides agree, dates in 2 min
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
- The cost of the imported machine includes the custom duty, freight and erection charges, which are directly attributable to bringing it to working condition: 4,80,000 + 96,000 + 1,44,000 = ₹7,20,000.
- Straight line at 20% a year on cost, for the months each machine is held. Depreciation of an asset begins when it is available for use.
- One-third of the imported machine (cost ₹2,40,000) is sold on 1st July 2022: it is depreciated to that date, and the difference between its written down value and the proceeds is a loss on sale, taken to the Profit and Loss Account.
Machinery Account
2020
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Bank (imported machine, 1.7.2020, with duty, freight and erection) | 7,20,000 | By Depreciation (6 months) | 72,000 |
| By Balance c/d | 6,48,000 | ||
| 7,20,000 | 7,20,000 |
| Dr | ₹ |
|---|---|
| To Bank (imported machine, 1.7.2020, with duty, freight and erection) | 7,20,000 |
| 7,20,000 | |
| Cr | ₹ |
| By Depreciation (6 months) | 72,000 |
| By Balance c/d | 6,48,000 |
| 7,20,000 |
2021
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Balance b/d | 6,48,000 | By Depreciation (1,44,000 + 48,000) | 1,92,000 |
| To Bank (local machine, 1.1.2021) | 2,40,000 | By Balance c/d | 6,96,000 |
| 8,88,000 | 8,88,000 |
| Dr | ₹ |
|---|---|
| To Balance b/d | 6,48,000 |
| To Bank (local machine, 1.1.2021) | 2,40,000 |
| 8,88,000 | |
| Cr | ₹ |
| By Depreciation (1,44,000 + 48,000) | 1,92,000 |
| By Balance c/d | 6,96,000 |
| 8,88,000 |
2022
| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Balance b/d | 6,96,000 | By Bank (sale of one-third, 1.7.2022) | 96,000 |
| To Bank (new machine, 1.7.2022) | 1,20,000 | By Profit and Loss A/c (loss on sale) | 48,000 |
| By Depreciation (24,000 + 96,000 + 48,000 + 12,000) | 1,80,000 | ||
| By Balance c/d | 4,92,000 | ||
| 8,16,000 | 8,16,000 |
| Dr | ₹ |
|---|---|
| To Balance b/d | 6,96,000 |
| To Bank (new machine, 1.7.2022) | 1,20,000 |
| 8,16,000 | |
| Cr | ₹ |
| By Bank (sale of one-third, 1.7.2022) | 96,000 |
| By Profit and Loss A/c (loss on sale) | 48,000 |
| By Depreciation (24,000 + 96,000 + 48,000 + 12,000) | 1,80,000 |
| By Balance c/d | 4,92,000 |
| 8,16,000 |
Working notes
Working notes
- Part sold (cost 2,40,000): depreciation 2020 24,000, 2021 48,000, 2022 to 1st July 24,000 = 96,000; written down value 1,44,000; sold for 96,000: loss ₹48,000.
- Depreciation 2022: part sold 24,000; remaining two-thirds (4,80,000) 96,000; local machine 48,000; new machine (6 months on 1,20,000) 12,000 = ₹1,80,000.
- Balance on 31st December 2022: remaining imported part 4,80,000 − 2,40,000 = 2,40,000; local machine 2,40,000 − 96,000 = 1,44,000; new machine 1,08,000; total ₹4,92,000.
Where the 12 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Cost of the imported machine and 2020 depreciation | 2 |
| 2 | 2021 account | 2 |
| 3 | Part sold: depreciation to date and loss | 4 |
| 4 | 2022 depreciation and balance | 4 |
| Total | 12 |
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