Question 2 (b)
Plant Account under AS 10, with a change of method during the year
12 marks
- Time to write
- About 24 minutes
- Notes
- Crux notes
Question
Question 2 (b) · 12 marksIn the books of Komal Ltd, the book value of Plant (P1) as on 1st April 2022 showing a debit balance of ₹2, 00,000. A new Plant (P2) was bought for ₹1,20,000 on 1st January 2023, and another Plant (P3) for ₹6,00,000 on 1st October 2023. On 1st July 2024, Plant (P1) was sold for ₹1,72,000. Komal Ltd provide depreciation with Straight Line Method @10% per annum, every year on 31st March. In January 2025, the management decided to change its method of providing depreciation from Straight Line Method @10% to the Diminishing Balance @30% per annum. Prepare the Plant Account for three year ending 31.3.2025 in accordance with Accounting Standard (AS) 10, Property Plant and Equipment.
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
- Prepare the Plant AccountDraw the format first (heading, columns, dates), then fill in the figures from your working.
What the paper leaves open
- P1's opening figure, printed "₹2, 00,000", is a book value; the straight-line charge of 10% is read as ₹20,000 a year on it.
- The change of method decided in January 2025 is applied to the whole year ending 31.3.2025, from 1st April 2024: AS 10 applies a change of method prospectively from the period of change, and the year's depreciation is charged once, on 31st March. The answer also shows the figures with the new method from 1st January 2025 only.
- "Three year ending 31.3.2025" is read as the years 2022-23 to 2024-25.
Write it in this order
- Read the data; tick every adjustment as you plan it 2 min
- 1 2022-23 and 2023-24 straight-line depreciation by months 4 marks 7 min
- 2 Change of method applied from the start of 2024-25 4 marks 7 min
- 3 Sale of P1 and its profit 2 marks 3 min
- 4 Ledger balanced each year 2 marks 3 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
- Depreciation is charged on 31st March each year, on the straight line at 10%, for the months each plant is held. P1's opening figure is a book value; 10% straight line is read as ₹20,000 a year on it.
- The change of method to the diminishing balance at 30% is decided in January 2025, inside the year ending 31.3.2025. A change of method is a change in an accounting estimate under AS 10, applied prospectively from the period of change; the year's depreciation is charged once, on 31st March, after the decision. So the new method is applied to the whole of 2024-25, from 1st April 2024, on the carrying amounts at that date.
- On the sale of P1, the gain (proceeds less carrying amount) goes to the statement of profit and loss.
Plant Account
| Year | Dr | ₹ | Cr | ₹ |
|---|---|---|---|---|
| 2022-23 | To Balance b/d (P1, book value) | 2,00,000 | By Depreciation (P1 20,000 + P2 3,000) | 23,000 |
| To Bank (P2, 1.1.2023) | 1,20,000 | By Balance c/d (P1 1,80,000 + P2 1,17,000) | 2,97,000 | |
| 3,20,000 | 3,20,000 | |||
| 2023-24 | To Balance b/d | 2,97,000 | By Depreciation (P1 20,000 + P2 12,000 + P3 30,000) | 62,000 |
| To Bank (P3, 1.10.2023) | 6,00,000 | By Balance c/d (P1 1,60,000 + P2 1,05,000 + P3 5,70,000) | 8,35,000 | |
| 8,97,000 | 8,97,000 | |||
| 2024-25 | To Balance b/d | 8,35,000 | By Bank (sale of P1, 1.7.2024) | 1,72,000 |
| To Profit and Loss A/c (profit on sale of P1) | 24,000 | By Depreciation at 30% WDV (P1 12,000 + P2 31,500 + P3 1,71,000) | 2,14,500 | |
| By Balance c/d (P2 73,500 + P3 3,99,000) | 4,72,500 | |||
| 8,59,000 | 8,59,000 |
P1 in 2024-25: 1,60,000 × 30% × 3/12 = 12,000; carrying amount 1,48,000; sold for 1,72,000: profit ₹24,000.
The other reading
| Figure | This answer: new method for the whole of 2024-25 | Straight line to 31 December 2024, diminishing balance from 1 January 2025 |
|---|---|---|
| Depreciation 2024-25 (₹) | 2,14,500 | 1,05,575 |
| Profit on sale of P1 (₹) | 24,000 | 17,000 |
| Plant balance on 31.3.2025 (₹) | 4,72,500 | 5,74,425 |
Where the 12 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | 2022-23 and 2023-24 straight-line depreciation by months | 4 |
| 2 | Change of method applied from the start of 2024-25 | 4 |
| 3 | Sale of P1 and its profit | 2 |
| 4 | Ledger balanced each year | 2 |
| Total | 12 |
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