Class 11 Accountancy NCERT Solutions for Chapter 7 2021: Download PDF

NCERT Solutions for Class 11 Accountancy Chapter 7

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NCERT Solutions For Class 11 Chapter 7 PDF

NCERT solutions for Class 11 Accountancy Chapter 7

 

 

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NCERT Solutions For Class 11 Chapter 7: Overview

Accounting, in its most basic form, is the methodical recording of a business’s financial activities. This procedure necessitates a grasp of three essential components. The following are the details.

Record Keeping System

Certain regulations, procedures, and standardised forms must be understood in order to keep track of things.

Transaction Tracking

It’s also vital to know the different types of transactions, such as customer orders, payments made, and so on, while recording transactions.

Financial Reporting

Some financial transactions must be handled differently than others, and they must be recorded properly. Financial reporting entails keeping track of expenses, revenues, earnings, capital invested, and so on, and developing a thorough understanding of them.

The Layers of Accounting

As an overview of the topic, you will find questions on the many layers of accounting in Class 11 Accounts Chapter 7 NCERT Solutions.

Accounting is divided into sections, layers, and types. Every organisation is free to determine these layers on its own, however some of the layers that are universally recognised are listed below.

Taxes: It goes without saying that taxes play a significant part in business, and every corporate organisation must be entirely clear about them. As a result, accounting entails keeping track of taxes paid, pending, and so on.

Payroll: Payrolls are responsible for not just paying current employees, but also for various employee-related payments such as social security, workers’ compensation, and so on.

Accounts Payable and Receivable: A firm functions smoothly when its finances run smoothly. As a result, the accountant must keep track of money spent at a certain location as well as money received after-sales.

Bookkeeping: If the accountant overlooks these, they accumulate into large figures, causing the entire accounting to be ruined. As a result, every small and large transaction must be recorded.

The End Result of Accounting

It’s time to assess the data after the transactions have been recorded and stored. But how do you do it? Is it necessary to go over all of the spreadsheets and the tiniest transactions? No, and never.

If the investor or business owner wishes to examine the performance of his company, records are created. The following are the most common types of reports generated.

  • Statement of Profit and Loss
  • Balance Sheets
  • Assets and Liabilities Report
  • Retained Equity

While these were just a few of the chapter 7 Statistics Class 11 introduction topics, you may find fully solved and well-explained solutions to all NCERT problems in chapter 7.

Access NCERT Solutions For Class 11 Accountancy Chapter 7

1. What is Depreciation?

Any fixed asset that is acquired by a business is subjected to wear & tear and obsolescence over a time. This decrease in monetary value is calculated by a measure in accounting referred to as depreciation.

2.State briefly the need for providing depreciation.

Depreciation is needed for following reasons:

  1. Determining actual profit or loss: Actual profit and loss can be determined only when all expenditures and losses are added to P & L Account. Assets in business are used to earn revenues; the corresponding cost gets charged as depreciation in P & L Account (Profit & Loss Account).
  2. Provide unbiased view of financial statements: Assets will be shown at inflated values when depreciation do not get charged, so it will lead to balance sheet not showing the fair view of the financial statements.
  3. Cost of production: Production cost includes the depreciation charged on machinery and plant and other similar assets. When depreciation is not charged production cost will be uneven which will reduce the profit.
  4. Distribution of dividend from profit: If no depreciation is charged then overestimation of profit takes place which causes profit to be distributed as dividend. It results in movement of capital away from the business.
  5. Funds used for asset replacement: Depreciation charged for assets will help in meeting the expense for replacing the asset in future.
  6. Tax consideration: The P & L account will reflect less profit if depreciation is charged, which results in paying less taxes for the business.
  7. What are the causes of depreciation?

The major causes of depreciation are listed below:

  1. Regular use: Regular use of assets leads to decrement that reduces the value of such assets.
  • Expiry with time: Assets whether used or not, will show a decline in their effective life with the passage of time. Rain, wind and other Natural forces bring about deterioration of the asset.
  • Obsolescence: Technological advances will make the current assets obsolete in future
  1. Legal rights expiry: An assets value becomes zero after its useful life. This is known as depreciation in accounting terms.
  • Accident: The value of an asset can be permanently reduced due to some accident which can include fire, natural calamity etc.

4. Explain basic factors affecting the amount of depreciation

The basic factors affecting the amount of depreciation are as follows:

  1. Cost of asset: Depreciation of an asset is directly proportional to the cost of asset and cost of a fixed asset is calculated by adding cost of acquisition, installation etc. Hence, cost is an important factor for affecting depreciation.
  2. Estimated useful life: Every fixed asset has a useful life till which it can be used for a business. After that it will not be of any use to the business. Hence, useful life of an asset is also a factor to determine depreciation.
  3. Estimated scrap value: Every asset has a scrap value or salvage value. It is also known as net residual value or as the sale value of the asset arrived at the end of its useful life. If the net residual value is more, it will help in reducing the amount of depreciation and vice versa. Thus, net residual value is also one of the factors affecting the amount of depreciation.

4. Distinguish between straight line method and written down value method of calculating depreciation.

The points of difference between straight line method and written down value method is as follows:

Basis of Comparison

Straight Line Method

Written Down Value Method

How it is calculated

Original asset cost is taken as the basis for calculating Depreciation

Reducing balance is the basis of calculating depreciation. Reducing balance is also known as book value

How depreciation is charged

A fixed amount is deducted every year till the useful life of the asset

Depreciation is deducted based on the written down value of an asset every year, till the effective life of an asset.

Value of Asset

It reaches zero at the effective life of the asset and is written off

It never becomes zero and hence not completely written off.

Asset Suitability

Assets such as buildings and lands which require less repair and have less chances of becoming obsolete are suitable for this method

Assets requiring more repair like, machinery ,plant, car are more suitable

Impact of Depreciation and repairs on P & L account

Increases every year

Remains constant every year

6.In case of a long-term asset, repair and maintenance expenses are expected to rise in later years than in earlier year. Which method is suitable for charging depreciation if the management does not want to increase burden on profits and loss account on account of depreciation and repair?

In case of assets that require more repairs in the later part of their life such as car, machinery etc., the most preferred method that can be used by management for maintaining a balance on profit and loss account is the written down method.

In this method, in the initial years, depreciation costs are high and repairs are less, while at the later years the situation is reversed and the repair cost increases with lower depreciation costs. This creates a balance without putting burden on profit.

7. What are the effects of depreciation on profit and loss account and balance sheet?

Following effects can be seen in P & L account:

  1. Reduces net profit by increasing the debit column of P & L account.
  2. Surplus of debit balance occurs over the credit balance due to increase in the total expenses.

8. Impact on balance sheet:

  1. It leads to reduction of book value or original cost of the asset.
  2. It leads to decrease in total balance of the asset’s column.
  3. Distinguish between provision and reserve

Basis of Comparison

Provision

Reserve

Meaning

Maintained to meet a liability that is known in nature

Created to meet any liability that is unknown in nature

Nature

It is charged against profit

Appropriation of profit is reserve

Purpose

Formed with a specific liability in mind

Created for fortifying the business

How it is created

By debiting P& L account

By debiting the P & L appropriation account.

Dividend Payment

Not used for paying dividends

Can be utilized for paying dividends

Need of Creation

It needs to be created if business makes no profit at all

It is created if profit is there in business

9.Give four examples each of provision and reserves.

Examples of provision:

  • Provision for taxation
  • Provision for discount on debtors
  • Provision for bad and doubtful debts
  • Provision for depreciation

Examples of reserves:

  • Dividend equalisation reserve
  • Debenture redemption reserve
  • General reserve
  • Capital reserve

10.Distinguish between revenue reserve and capital reserve.

Basis of Comparison

Revenue Reserve

Capital Reserve

Source of creation

Revenue received from daily operations of a business.

Profits earned from sale of capital assets.

For paying Dividend

Yes, can be paid as dividend

No, cannot be paid as dividend

Purpose

It helps serving the purpose of solidification of the businesses financial position

Serves the purpose of financing long term project or writing off capital expenses

11.Give four examples each of revenue reserve and capital reserves.

Revenue reserve examples are as follows:

  • General Reserve
  • Retained Earnings
  • Dividend Equalisation Reserve
  • Debenture Redemption Reserve

Capital reserve examples are as follows:

  • Sale of fixed assets
  • Issues of shares at premium
  • Profit or issue of shares
  • Profit on redemption of debentures

12. Distinguish between general reserve and specific reserve.

Basis of Comparison

General Reserve

Specific Reserve

Meaning

A reserve created without any specific purpose

Reserve created with a specific purpose

Uses

Can be utilized on whichever purpose necessary for business

It needs to be used only for the purpose it is created

Some examples

Fund reserves, retained earnings

Dividend equalisation reserve, Debenture redemption reserve, etc.

13. Explain the concept of secret reserve.

An amount that leads to undervaluing the assets of an organization or overestimation of liabilities is called as secret reserve. It is formed with the purpose of hiding business profit from competitive organizations or competitors.

Long Answers for NCERT Accountancy Solutions Class 11 Chapter 7

1. Explain the concept of depreciation. What is the need for charging depreciation and what are the causes of depreciation?

Any fixed asset that is acquired by a business is subjected to wear and tear and obsolescence over a time. This decrease in monetary value is calculated by a measure in accounting called as depreciation.

Depreciation is needed for following reasons:

  1. Determining actual profit or loss: Actual profit and loss can be determined only when all losses and expenses are added to P & L Account. Assets are used in business to earn revenues, the cost is charged as depreciation in P & L Account (Profit & Loss Account).
  2. Provide fair view of financial statements: Assets will be shown at inflated values as charge for depreciation is not added, so it will lead to balance sheet not showing the fair view of the financial statements.
  3. Cost of production: Cost of production includes the depreciation charged on plant, machinery and other similar assets. If depreciation is not charged cost of production will be uneven which will reduce the profit.
  4. Distribution of dividend from profit: If no depreciation is charged then overestimation of profit takes place which leads to profit being circulated as dividend. It leads to the movement of capital away from the business.
  5. Funds used for replacement of assets: Depreciation charged for assets will help in meeting the expense for replacing of asset in future.
  6. Tax consideration: The P & L account will reflect less profit if depreciation is charged, which results in paying less taxes for the business.

The major causes of depreciation are listed below:

  1. Regular use: Regular use of assets leads to its deterioration that reduces the value of such assets.
  • Expiry with time: Assets whether used or not, will show a decline in their effective life with the passage of time. Rain, wind and other Natural forces bring about deterioration of the asset.
  • Obsolescence: Technological advances will make the current assets obsolete in future
  1. Legal rights Expiry: The value of an asset becomes zero after its useful life. This is known as depreciation in accounting terms.
  • Accident: The value of an asset can be permanently reduced due to some accident which can include fire, natural calamity etc.

2. Discuss in detail the straight-line method and written down value method of depreciation. Distinguish between the two and also give situations where they are useful.

Straight Line method

It is one of the simplest method of calculating depreciation. It is charged on original cost of the asset at a constant rate.

Depreciation is calculated using the formulae:

Annual Depreciation expense = (Asset cost – Residual Value) / Useful life of the asset

Advantages of Straight-Line Method

  • Simple calculation required
  • Value of an asset can be made zero after its useful life.
  • Comparing P & L accounts every year is easy as equal amount is charged as depreciation.
  • It is suitable for assets which require less repairs.

Straight-Line Method limitations

  • More burden on P & L account as asset becomes older and requires repair and maintenance.
  • An asset can become zero value even when it is in useful condition.

Straight-Line Method benefits

  • Useful for assets which require less repairs and maintenance.
  • Useful if an asset is used continuously.

Written Down Value Method

Rate of depreciation is calculated on the diminishing value of asset. It is also known as reducing balance method.

Rate of depreciation is calculated using the formulae:

Where,

R = depreciation rate

n = Assets useful life that can be expected

s = scrap value

c= cost of an asset

Written Down Value Method Advantages

  • Depreciation is charged more in initial years as asset will be more useful during the early years.
  • As assets will be requiring more repair in the later stages. The collective load of depreciation and repairs on profit and loss account will remain equal over the years.
  • Approved for tax calculations
  • Loss arising from obsolescence can be greatly reduced as most of the cost is recovered in the initial years.

Written Down Value Method Limitations

  • Determining the rate of depreciation is difficult.
  • The book value never reaches zero in this method as depreciation cannot be fully written off.
  • Business may find it difficult to gather price for replacement of asset as most of the depreciation is charged in the early years and that amount is used in the business.

Written Down Value Method Uses

  • Suitable for assets having long useful life.
  • Convenient for assets that requiring greater maintenance costs and repairs in the later years.

Difference between Straight Line Method and Written Down Value Method

Basis of Comparison

Straight Line Method

Written Down Value Method

How it is calculated

Actual cost of an asset is taken as the basis for calculating Depreciation

Reducing balance is the basis of calculating depreciation. Reducing balance is also known as book value

How depreciation is charged

Fixed amount is charged every year till the effective life of the asset

Depreciation is charged based on the written down value of asset every year, till the effective life of the asset

Value of Asset

It becomes zero at the end of effective life of the asset and is written off

It never becomes zero and hence not completely written off.

Asset Suitability

Assets such as buildings and lands which require less repair and have less chances of becoming obsolete are suitable for this method

Assets requiring frequent repair like, machinery, plant and car.

Impact of Depreciation and repairs on P & L account

Increases every year

Remains constant every year

4. Describe in detail two methods of recording depreciation. Also give the necessary journal entries.

Here are some methods by which depreciation can be recorded:

  • Depreciation charged to asset account: In this method, the depreciation is deducted from the depreciable cost of the asset which gets credited to asset account and debited to profit and loss account.

Journal entries for depreciation are shown below:

Depreciation charged to asset account

Depreciation A/c

Dr.

 

To Assets A/c

 

(Depreciation charged to Assets Account)

 

Closing of Depreciation Account

Profit and Loss A/c

Dr.

 

To Depreciation A/c

 

(Depreciation transferred to P& L Account)

 
  • Provision created for depreciation account− In this method amount of depreciation is debited to depreciation account and credited to provision for depreciation account. The depreciation amount gets transferred to P & L account at the end of the year.

Following journal entries are made:

Charging (crediting) Depreciation to Provision for depreciation account

Depreciation A/c

Dr.

 

To Provision for Depreciation A/c

 

(Charged Depreciation)

 

For charging depreciation to P & L account

Profit and Loss A/c

Dr.

 

To Depreciation A/c

 

(Depreciation charged to Profit and Loss Account)

 

After sale of asset, the accumulated depreciation gets credited to the Asset account with the following entry:

Provision for Depreciation A/c

Dr.

 

To Asset A/c

 

(Accumulated depreciation gets debited to Assets Account)

 

14. Explain determinants of the amount of depreciation.

The basic factors affecting the amount of depreciation are as follows:

  1. Cost of asset: Depreciation of an asset is directly proportional to the cost of asset and cost of a fixed asset is calculated by adding cost of acquisition, installation etc. Hence, cost is an important factor for affecting depreciation.
  2. Estimated useful life: Every fixed asset has a useful life till which it can be used for a business. After that it will not be of any use to the business. Hence, useful life of an asset is also a factor to determine depreciation.
  3. Estimated scrap value: Every asset has a scrap value or salvage value. It is also known as net residual value or sale value of the asset at the end of its useful life. If the net residual value is more, it will help in reducing the amount of depreciation and vice versa. Thus, net residual value is also one of the factors affecting the amount of depreciation.

After 10 years, furniture is sold at ₹ 5,000. So, depreciation will be:

Depreciation (p.a.)

=

(Original cost – Scrap Value)

   

Estimated Life of Asset (years)

   
 

=

(40,000 – 5,000)

10

 

=3,500/annum

 

5. Name and explain different types of reserves in details.

Reserves: Reserves are created from the profits of the business. It helps in fortifying the financial position of a business and also help in growth of company.

Reserves are classified into two types:

  • Revenue Reserve: Revenue reserve is created from revenue profit. It can be of two types: a) General and b) Specific Purpose
  1. General Reserve: The purpose for which reserves are created are not specified, such reserves are called as General Reserves. These reserves can be utilized for the growth of business.
  2. Specific Reserve: A specific reserve is created with the intent of utilizing for a specific purpose in the business.

Following are some examples:

  1. Dividend Equalisation Reserve
  2. Debenture Redemption Reserve
  • Capital Reserve: Reserve which is created out of capital profit such as sale of some fixed asset is known as capital reserve. Here are some examples of capital reserves:
  1. Premium on issue of debentures
  2. Premium on issue of shares

iii. Profit on sale of fixed assets

  1. Profit prior to incorporation
  2. Profit on redemption of debentures
  3. Secret Reserves− An amount that leads to undervaluing the assets of an organization or overestimation of liabilities is called as secret reserve. It is created with the purpose of hiding business profit from competitive organizations or competitors.
  4. What are provisions? How are they created? Give accounting treatment in case of provision for doubtful Debts.

The actual amount of expenses or losses for the current accounting period cannot be determined with certainty as they have not been incurred yet. Net profit of the business can only be arrived after making a provision for such expenses or losses. A few examples of provisions are mentioned below:

  • Provision for depreciation
  • Provision for taxation
  • Provision for bad and doubtful debts
  • Provision for discount on debtors

Provisions are created by debiting the Profit and Loss Account on estimate basis. It is created on the basis of past experiences. A business may experience common losses, such as depreciation of fixed assets, taxation, etc. every year, which although are known; but, their exact amount in future period is unknown.

Therefore, a business always creates a provision based on certain percentage every year, which is purely based on the intuition and past experiences. These undetermined liabilities in form of provisions are kept aside, which will help future business activities, undisturbed from the future losses.

Accounting treatment for provision for doubtful debts is:

Profit and Loss A/c

Dr.

 

To Provision for Doubtful Debts

 

(Provision for doubtful debts made)

 

Numerical Answers for NCERT Accountancy Solutions Class 11 Chapter 7

1. On April 01, 2010, Bajrang Marbles purchased a Machine for ₹ 1, 80,000 and spent ₹ 10,000 on its carriage and ₹ 10,000 on its installation. It is estimated that its working life is 10 years and after 10 years its scrap value will be ₹ 20,000.

(a) Prepare Machine account and Depreciation account for the first four years by providing depreciation on straight line method. Accounts are closed on March 31st every year.

(b) Prepare Machine account, Depreciation account and Provision for depreciation account (or accumulated depreciation account) for the first four years by providing depreciation using straight line method accounts are closed on March 31 every year.

Machine account and Depreciation account using depreciation on straight line method is as follows:

Books of Bajrang Marbles

(a)

 

Machinery Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2010

     

2011

     

Apr.01

Bank

 

2,00,000

Mar.31

Depreciation

 

18,000

         

Balance c/d

 

1,82,000

     

2,00,000

     

2,00,000

               

2011

     

2012

     

Apr.01

Balance b/d

 

1,82,000

Mar.31

Depreciation

 

18,000

       

Mar.31

Balance c/d

 

1,64,000

     

1,82,000

     

1,82,000

               

2012

     

2013

     

Apr.01

Balance b/d

 

1,64,000

Mar.31

Depreciation

 

18,000

       

Mar.31

Balance c/d

 

1,46,000

     

1,64,000

     

1,64,000

               

2013

     

2014

     

Apr.01

Balance b/d

 

1,46,000

Mar.31

Depreciation

 

18,000

       

Mar.31

Balance c/d

 

1,28,000

     

1,46,000

     

1,46,000

               
                 

Hence, the closing balance of machinery account after 4 years is ₹. 1, 28,000.

Working notes: Calculation of annual depreciation

Cost of Asset= 1, 80,000 + 10,000 +10,000= 2, 00,000

Depreciation (p.a.)

=

(Original cost – Scrap Value )

     

Estimated Life of Asset (years)

     
 

=

(1,80,000 + 10,000 + 10,000 – 20,000)

 

10

 

=

₹ 18,000/annum

 

The depreciation account is calculated as:

Depreciation Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2011

     

2011

     

Mar.31

Machinery

 

18,000

Mar.31

Profit and Loss

 

18,000

               
     

18,000

     

18,000

               

2012

     

2012

     

Mar.31

Machinery

 

18,000

Mar.31

Profit and Loss

 

18,000

               
     

18,000

     

18,000

               

2013

     

2013

     

Mar.31

Machinery

 

18,000

Mar.31

Profit and Loss

 

18,000

               
     

18,000

     

18,000

               

2014

     

2014

     

Mar.31

Machinery

 

18,000

Mar.31

Profit and Loss

 

18,000

               
     

18,000

     

18,000

               

(b)

Machinery Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount 

Date

Particulars

J.F.

Amount

2010

     

2011

     

Apr.01

Bank

 

2,00,000

Mar.31

Balance c/d

 

2,00,000

               
     

2,00,000

     

2,00,000

               

2011

     

2012

     

Apr.01

Balance b/d

 

2,00,000

Mar.31

Balance c/d

 

2,00,000

               
     

2,00,000

     

2,00,000

               

2012

     

2013

     

Apr.01

Balance b/d

 

2,00,000

Mar.31

Balance c/d

 

2,00,000

               
     

2,00,000

     

2,00,000

               

2013

     

2014

     

Apr.01

Balance b/d

 

2,00,000

Mar.31

Balance c/d

 

2,00,000

               
     

2,00,000

     

2,00,000

               

 


Provision for Depreciation Account

 

Dr.

           

Cr.

 

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2011

     

2011

     

Mar.31

Balance c/d

 

18,000

Mar.31

Depreciation

 

18,000

               
     

18,000

     

18,000

               
       

2011

     
       

Apr.01

Balance b/d

 

18,000

2012

     

2012

     

Mar.31

Balance c/d

 

18,000

Mar.31

Depreciation

 

18,000

     

36,000

     

36,000

               
       

2012

     
       

Apr.01

Balance b/d

 

36,000

2013

     

2013

     

Mar.31

Balance c/d

 

54,000

Mar.31

Depreciation

 

18,000

     

54,000

     

54,000

               
       

2003

     
       

Apr.01

Balance b/d

 

54,000

2014

     

2014

     

Mar.31

Balance c/d

 

72,000

Mar.31

Depreciation

 

18,000

     

72,000

     

72,000

               

Hence, the provision for Depreciation account at the end of 4th Year is ₹.72, 000

Depreciation Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2011

     

2011

     

Mar.31

Provision for Depreciation

 

18,000

Mar.31

Profit and Loss

 

18,000

               
     

18,000

     

18,000

               

2012

     

2012

     

Mar.31

Provision for Depreciation

 

18,000

Mar.31

Profit and Loss

 

18,000

               
     

18,000

     

18,000

               

2013

     

2013

     

Mar.31

Provision for Depreciation

 

18,000

Mar.31

Profit and Loss

 

18,000

               
     

18,000

     

18,000

               

2014

     

2014

     

Mar.31

Provision for Depreciation

 

18,000

Mar.31

Profit and Loss

 

18,000

               
     

18,000

     

18,000

               

2. On July 01, 2010, Ashok Ltd. Purchased a Machine for ₹ 1, 08,000 and spent ₹ 12,000 on its installation. At the time of purchase it was estimated that the effective commercial life of the machine will be 12 years and after 12 years its salvage value will be ₹ 12,000.

Prepare machine account and depreciation Account in the books of Ashok Ltd. For first three years, if depreciation is written off according to straight line method. The account are closed on December 31st, every year.

The machine account and depreciation account are as follows:

Cost of Machine = ₹. (1, 08,000 + 12,000)

= ₹ 1, 20,000

Books of Ashok Ltd.

Machinery Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2010

     

2010

     

Jul.01

Bank

 

1,20,000

Dec.31

Depreciation

 

4,500

       

Dec.31

Balance c/d

 

1,15,500

     

1,20,000

     

1,20,000

               

2011

     

2011

     

Jan.01

Balance b/d

 

1,15,500

Dec.31

Depreciation

 

9,000

       

Dec.31

Balance c/d

 

1,06,500

     

1,15,000

     

1,15,500

               

2012

     

2012

     

Jan.01

Balance b/d

 

1,06,500

Dec.31

Depreciation

 

9,000

       

Dec.31

Balance c/d

 

97,500

     

1,06,500

     

1,06,500

2013

             

Jan.01

Balance b/d

 

97,500

       
               

Hence, the closing balance after three years is ₹ 97,500.

Working notes: Calculation of annual depreciation

Depreciation (p.a.)

=

(Original cost – Scrap Value )

Estimated Life of Asset (years)

 

Depreciation

=

(1,08,000 + 12,000 – 12,000)

12

 

=

₹ 9,000

 

Depreciation Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2010

     

2010

     

Dec.31

Machinery

 

4,500

Dec.31

Profit and Loss

 

4,500

               
     

4,500

     

4,500

               

2011

     

2011

     

Dec.31

Machinery

 

9,000

Dec.31

Profit and Loss

 

9,000

               
     

9,000

     

9,000

               

2012

     

2012

     

Dec.31

Machinery

 

9,000

Dec.31

Profit and Loss

 

9,000

               
     

9,000

     

9,000

               

3.Reliance Ltd. purchased a second hand machine for ₹ 56,000 on October 01, 2011 and spent ₹ 28,000 on its overhaul and installation before putting it to operation. It is expected that the machine can be sold for ₹ 6,000 at the end of its useful life of 15 years. Moreover an estimated cost of ₹ 1,000 is expected to be incurred to recover the salvage value of ₹ 6,000. Prepare machine account and Provision for depreciation account for the first three years charging depreciation by fixed Instalment Method. Accounts are closed on March 31, every year.

Machine account and provision for depreciation account are as follows:

Books of Reliance Ltd.

Machinery Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2011

     

2011

     

Oct.01

Bank

 

84,000

       
       

Dec.31

Balance c/d

 

84,000

     

84,000

     

84,000

               

2012

     

2012

     

Jan.01

Balance b/d

 

84,000

       
       

Dec.31

Balance c/d

 

84,000

     

84,000

     

84,000

               

2013

     

2013

     

Jan.01

Balance b/d

 

84,000

       
       

Dec.31

Balance c/d

 

84,000

     

84,000

     

84,000

               

 

Provision for Depreciation  Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

       

2011

     
       

Dec.31

Depreciation

 

1,316

2011

             

Dec.31

Balance c/d

 

1,316

       
     

1,316

     

1,316

               
       

2012

     
       

Jan.01

Balance b/d

 

1,316

2012

     

Dec.31

Depreciation

 

5,267

Dec.31

Balance c/d

 

6,583

       
     

6,583

     

6,583

               
       

2013

     
       

Jan.01

Balance b/d

 

6,583

2013

     

Dec.31

Depreciation

 

5,267

Dec.31

Balance c/d

 

11,850

       
     

11,850

     

11,850

       

2014

     
       

Jan.01

Balance b/d

 

11,850

               

As per the solution the balance of provision for depreciation account is ₹. 11,850

Working Note:

Calculation of annual depreciation

Depreciation (p.a.)

=

(Original cost – Scrap Value )

Estimated Life of Asset (years)

 

Depreciation (p.a.)

=

(56,000 + 28,000 – 6,000 + 1,000)

15 years

 

=

₹ 5,267

4. Berlia Ltd. Purchased a second hand machine for ₹ 56,000 on July 01, 2015 and spent ₹ 24,000 on its repair and installation and ₹ 5,000 for its carriage. On September 01, 2016, it purchased another machine for ₹ 2, 50,000 and spent ₹ 10,000 on its installation.

(a) Depreciation is provided on machinery @10% p.a on original cost method annually on December 31. Prepare machinery account and depreciation account from the year 2015 to 2018.

(b) Prepare machinery account and depreciation account from the year 2015 to 2018, if depreciation is provided on machinery @10% p.a. on written down value method annually on December 31.

The machinery account and depreciation account are as follows:

Books of Berlia Ltd.

(a)

Machinery Account (Using Original Cost Method)

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2015

     

2015

     

Jul.01

Bank (i)

 

85,000

Dec.31

Depreciation

 

4,250

 

(5,600 + 24,000 + 5,000)

   

Dec.31

Balance c/d

 

80,750

     

85,000

     

85,000

               

2016

     

2016

     

Jan.01

Balance b/d (i)

 

80,750

Dec.31

Depreciation

   

Sep.01

Bank (ii)

 

2,60,000

 

(i) 8,500, (ii) 8,667

 

17,167

 

(2,50,000 + 10,000)

   

Dec.31

Balance c/d

 

3,23,583

         

(i) 72,250, (ii) 2,51,333

   
     

3,40,750

     

3,40,750

               

2017

     

2017

     

Jan.01

Balance b/d

 

3,23,583

Dec.31

Depreciation

   
 

(i) 72,250, (ii) 2,51,333

     

(i) 8,500, (ii) 26,000

 

34,500

       

Dec.31

Balance c/d

   
         

(i) 63,750, (ii) 2,25,333

 

2,89,083

     

3,23,583

     

3,23,583

               

2018

Balance b/d

   

2018

     

Jan.01

(i) 63,750, (ii) 2,25,333

 

2,89,083

Dec.31

Depreciation

   
         

(i) 8,500, (ii) 26,000

 

34,500

       

Dec.31

Balance c/d

   
         

(i) 55,250, (ii) 1,99,333

 

2,54,583

     

2,89,083

     

2,89,083

               

Hence, balance on machine account as on 1st Jan 2019 is ₹. 2, 54,583

Depreciation Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2015

     

2015

     

Dec.31

Machinery

 

4,250

Dec.31

Profit and Loss

 

4,250

     

4,250

     

4,250

               

2016

     

2016

     

Dec.31

Machinery

   

Dec.31

Profit and Loss

 

17,167

 

(i) 8,500 (ii) 8,667

 

17,167

       
     

17,167

     

17,167

               

2017

     

2017

     

Dec.31

Machinery

   

Dec.31

Profit and Loss

 

34,500

 

(i) 8,500 (ii) 26,000

 

34,500

       
     

34,500

     

34,500

               

2018

     

2018

     

Dec.31

Machinery

 

34,500

Dec.31

Profit and Loss

 

34,500

 

(i) 8,500 (ii) 26,000

 

34,500

     

34,500

               

Working notes: Calculation of depreciation per annum

(i) Depreciation on Machinery Purchased on July 01, 2015

 

= (56,000 + 24,000 + 5,000) ×

10

100

 

= ₹ 8,500 pa

 

(ii) Depreciation on Machinery purchased on September 01, 2016.

 

= (2,50,000 + 10,000)  ×

10

100

 

= ₹ 26,000 pa

 

(b)

Machinery Account (Written Down Value method)

Dr.

           

Cr.

Date

Particulars

J.F.

Amount 

Date

Particulars

J.F.

Amount 

2015

     

2015

     

Jul.01

Bank (i)

 

85,000

Dec.31

Depreciation

 

4,250

 

(5,600 + 24,000 + 5,000)

   

Dec.31

Balance c/d

 

80,750

     

85,000

     

85,000

               

2016

     

2016

     

Jan.01

Balance b/d (i)

 

80,750

Dec.31

Depreciation

   

Sep.01

Bank (ii)

 

2,60,000

 

(i) 8,075, (ii) 8,667

 

16,742

 

(2,50,000 + 10,000)

   

Dec.31

Balance c/d

   
         

(i) 72,675, (ii) 2,51,333

 

3,24,008

     

3,40,750

     

3,40,750

               

2017

     

2017

     

Jan.01

Balance b/d

 

3,24,008

Dec.31

Depreciation

   
 

(i) 72,675, (ii) 2,51,333

     

(i) 7,268, (ii) 25,133

 

32,401

       

Dec.31

Balance c/d

   
         

(i) 65,407, (ii) 2,26,200

 

2,91,607

     

3,24,008

     

3,24,008

               

2018

Balance b/d

   

2018

     

Jan.01

(i) 65,407, (ii) 2,26,200

 

2,91,607

Dec.31

Depreciation

   
         

(i) 6,540, (ii) 22,620

 

29,160

       

Dec.31

Balance c/d

   
         

(i) 58,867, (ii) 2,03,580

 

2,62,447

     

2,91,607

     

2,91,607

               

Hence, balance on machine account as on 1st Jan 2019 is ₹ 2, 62,447

Depreciation Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount ₹

2015

     

2015

     

Dec.31

Machinery

 

4,250

Dec.31

Profit and Loss

 

4,250

     

4,250

     

4,250

               

2016

     

2016

     

Dec.31

Machinery

   

Dec.31

Profit and Loss

 

16,742

 

(i) 8,075, (ii) 8,667

 

16,742

       
     

16,742

     

16,742

               

2017

     

2017

     

Dec.31

Machinery

   

Dec.31

Profit and Loss

 

32,401

 

(i) 7,268, (ii) 25,133

 

32,401

       
     

32,401

     

32,401

               

2018

     

2018

     

Dec.31

Machinery

   

Dec.31

Profit and Loss

 

29,160

 

(i) 6,540, (ii) 22,620

 

29,160

       
     

29,160

     

29,160

               

5. Ganga Ltd. purchased a machinery on January 01, 2014 for ₹ 5, 50,000 and spent ₹ 50,000 on its installation. On September 01, 2014 it purchased another machine for ₹ 3, 70,000. On May 01, 2016 it purchased another machine for ₹ 8, 40,000 (including installation expenses).

Depreciation was provided on machinery @10% p.a. on original cost method annually on December 31. Prepare:

(a) Machinery account and depreciation account for the years 2014, 2015, 2016 and 2017.

(b) If depreciation is accumulated in provision for Depreciation account then prepare machine account and provision for depreciation account for the years 2014, 2015, 2016 and 2017.

The machinery account and depreciation account are as follows:

(a)

Books of Ganga Ltd.

Machinery Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2014

     

2014

     

Jan.01

Bank (i)

 

6,00,000

Dec.31

Depreciation

(i) 60,000 (ii) 12,333

 

72,333

 

(5,50,000 + 50,000)

   

Dec.31

Balance c/d

   

Sep.01

Bank (ii)

 

3,70,000

 

(i) 5,40,000, (ii) 3,57,667

 

8,97,667

     

9,70,000

     

9,70,000

               

2015

     

2015

     

Jan.01

Balance b/d

   

Dec.31

Depreciation

   
 

(i) 5,40,000, (ii) 3,57,667

 

8,97,667

 

(i) 60,000, (ii) 37,000,

   

May.01

Bank (iii)

 

8,40,000

 

(iii) 56,000

 

1,53,000

       

Dec.31

Balance c/d

   
         

(i) 4,80,000 (ii) 3,20,667,

   
         

(iii) 7,84,000

 

15,84,667

     

17,37,667

     

17,37,667

               

2016

     

2016

     

Jan.01

Balance b/d

   

Dec.31

Depreciation

   
 

(i) 4,80,000, (ii) 3,20,667

     

(i) 60,000, (ii) 37,000,

   
 

(iii) 7,84,000

 

15,84,667

Dec.31

(iii) 84,000

 

1,81,000

         

Balance c/d

   
         

(i) 4,20,000, (ii) 2,83,667,

   
         

(iii) 7,00,000

 

14,03,667

     

15,84,667

     

15,84,667

               

2017

     

2017

     

Jan.01

Balance b/d

   

Dec.31

Depreciation

   
 

(i) 4,20,000, (ii) 2,83,667,

     

(i) 60,000, (ii) 37,000,

   
 

(iii) 7,00,000

 

14,03,667

 

(iii) 84,000

 

1,81,000

       

Dec.31

Balance c/d

   
         

(i) 3,60,000, (ii) 2,46,667,

   
         

(iii) 6,16,000

 

12,22,667

     

14,03,667

     

14,03,667

               

The balance of machine account is ₹.12, 22,667.

Depreciation Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount ₹

Date

Particulars

J.F.

Amount ₹

2014

     

2014

     

Dec.31

Machinery

 

72,333

Dec.31

Profit and Loss

 

72,333

     

72,333

     

72,333

               

2015

     

2015

     

Dec.31

Machinery

 

1,53,000

Dec.31

Profit and Loss

 

1,53,000

     

1,53,000

     

1,53,000

               

2016

     

2016

     

Dec.31

Machinery

 

1,81,000

Dec.31

Profit and Loss

 

1,81,000

     

1,81,000

     

1,81,000

               

2017

     

2017

     

Dec.31

Machinery

 

1,81,000

Dec.31

Profit and Loss

 

1,81,000

     

1,81,000

     

1,81,000

               

(b)

Machinery Account 

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2014

     

2014

     

Jan.01

Bank (i)

 

6,00,000

       
 

(5,50,000 + 50,000)

   

Dec.31

Balance c/d

   

Sep.01

Bank (ii)

 

3,70,000

     

9,70,000

     

9,70,000

     

9,70,000

               

2015

     

2015

     

Jan.01

Balance b/d

           
 

(i) 6,00,000 (ii) 3,70,000

 

9,70,000

       

May.01

Bank (iii)

 

8,40,000

Dec.31

Balance c/d

 

18,10,000

     

18,10,000

     

18,10,000

               

2016

     

2016

     

Jan.01

Balance b/d

   

Dec.31

Balance c/d

 

18,10,000

 

(i) 6,00,000 (ii) 3,70,000

           
 

(iii) 8,40,000

 

18,10,000

       
     

18,10,000

     

18,10,000

               

2017

     

2017

     

Jan.01

Balance b/d

   

Dec.31

Balance c/d

 

18,10,000

 

(i) 6,00,000 (ii) 3,70,000

           
 

(iii) 8,40,000

 

18,10,000

       
     

18,10,000

     

18,10,000

               

 

Provision for Depreciation  Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

 ₹

Date

Particulars

J.F.

Amount 

2014

     

2014

     

Dec.31

Balance c/d

 

72,333

Dec.31

Depreciation

 

72,333

               
     

72,333

     

72,333

               
       

2015

     

2015

     

Jan.01

Balance b/d

 

72,333

Dec.31

Balance c/d

 

2,25,333

Dec.31

Depreciation

 

1,53,000

     

2,25,333

     

2,25,333

               
       

2016

     

2016

     

Jan.01

Balance b/d

 

2,25,333

Dec.31

Balance c/d

 

4,06,333

Dec.31

Depreciation

 

1,81,000

     

4,06,333

     

4,06,333

               
       

2017

     

2017

     

Jan.01

Balance b/d

 

4,06,333

Dec.31

Balance c/d

 

5,87,333

Dec.31

Depreciation

 

1,81,000

     

5,87,333

     

5,87,333

               

The provision for depreciation account has a balance of ₹. 5, 87,333

6. Azad Ltd. purchased furniture on October 01, 2014 for ₹ 4, 50,000. On March 01, 2015 it purchased another furniture for ₹ 3, 00,000. On July 01, 2016 it sold off the first furniture purchased in 2014 for ₹ 2, 25,000. Depreciation is provided at 15% p.a. on written down value method each year. Accounts are closed each year on March 31. Prepare furniture account, and accumulated depreciation account for the years ended on March 31, 2015, March 31, 2016 and March 31, 2017. Also give the above two accounts if furniture disposal account is opened.

The furniture account and accumulated depreciation account are as follows:

Books of Azad Ltd.

Furniture Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount ₹

Date

Particulars

J.F.

Amount 

2014

     

2015

     

Oct.01

Bank (i)

 

4,50,000

       

2015

     

Mar.31

Balance c/d

 

7,50,000

Mar.01

Bank (ii)

 

3,00,000

       
     

7,50,000

     

7,50,000

               

2015

     

2016

     

Apr.01

Balance b/d

           
 

(i) 4,50,000, (ii) 3,00,000

 

7,50,000

Mar.31

Balance c/d

 

7,50,000

     

7,50,000

     

7,50,000

               

2016

     

2016

     

Apr.01

Balance b/d

 

7,50,000

July 01

Furniture Disposal

 

4,50,000

 

(i) 4,50,000, (ii) 3,50,000

   

2005

     
       

Mar.31

Balance c/d

 

3,00,000

     

7,50,000

     

7,50,000

               

 

Accumulated Depreciation Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount 

Date

Particulars

J.F.

Amount

 ₹

2015

     

2015

     

Mar.31

Balance c/d

 

37,500

Mar.31

Depreciation

   
         

(i) 33,750, (ii) 3,750

 

37,500

     

37,500

     

37,500

               

2016

     

2015

     

Mar.31

Balance c/d

 

1,44,376

Apr.01

Balance b/d

 

37,500

       

2016

     
       

Mar.31

Depreciation

   
         

(i) 62,438, (ii) 44,378

 

1,06,876

     

1,44,376

     

1,44,376

               

2016

     

2016

     

July.01

Furniture Disposal

 

1,09,456

Apr.01

Balance b/d

 

1,44,376

2017

     

July.01

Depreciation (i)

 

13,268

Mar.31

Balance c/d

 

85,960

2017

     
       

Mar.31

Depreciation (ii)

 

37,772

               
     

1,95,416

     

1,95,416

               

Hence, the balance of provision of depreciation account is ₹. 85,960.

Furniture Disposal Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount ₹

Date

Particulars

J.F.

Amount 

2016

     

2016

     

Jul.01

Furniture

 

4,50,000

Jul.01

Accumulated Dep.

 

1,09,456

       

Jul.01

Bank

 

2,25,000

       

Jul.01

Profit and Loss (Loss)

 

1,15,544

               
     

4,50,000

     

4,50,000

               

Working Note:

Furniture (i)

Years

Opening Balance

 

Depreciation

 

Closing Balance

2014 – 2015

4,50,000

33,750

 

=

4,16,250

2015 – 2016

4,16,250

62,438

 

=

3,53,812

2016

3,53,812

13,268

(3 months)

=

3,40,544

     

1,09,456

     

Balance on July 01, 2016

3,40,544

         

Less: Sale on July 01, 2016

(2,25,000)

         

Loss on sale of furniture

1,15,544

         

So, we see that Loss on sale of furniture is ₹ 1, 15,544.

7. M/s Lokesh Fabrics purchased a Textile Machine on April 01, 2011 for ₹ 1, 00,000. On July 01, 2012 another machine costing ₹ 2, 50,000 was purchased. The machine purchased on April 01, 2011 was sold for ₹ 25,000 on October 01, 2015. The company charges depreciation @15% p.a. on straight line method. Prepare machinery account and machinery disposal account for the year ended March 31, 2016.

 Machinery account and Machinery disposal account are prepared below:

Books of M/s. Lokesh Fabrics

Machinery Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2011

     

2012

     

Apr.01

Bank (i)

 

1,00,000

Mar.31

Depreciation

 

15,000

       

Mar.31

Balance c/d

 

85,000

               
     

1,00,000

     

1,00,000

               

2012

     

2013

     

Apr.01

Balance b/d

 

85,000

Mar.31

Depreciation

   

July.01

Bank (ii)

 

2,50,000

 

(i) 15,000 + 28,125

 

43,125

       

Mar.31

Balance c/d

   
         

(i) 70,000, (ii) 2,21,875

 

2,91,875

     

3,35,000

     

3,35,000

               

2013

     

2014

     

Apr.01

Balance b/d

   

Mar.31

Depreciation

   
 

(i) 70,000, (ii) 2,21,875

 

2,91,875

 

(i) 15,000, (ii) 37,500

 

52,500

       

Mar.31

Balance c/d

   
         

(i) 55,000, (ii) 1,84,375

 

2,39,375

     

2,91,875

     

2,91,875

               

2014

     

2015

     

Apr.01

Balance b/d

   

Mar.31

Depreciation

   
 

(i) 5,500, (ii) 1,84,375

 

2,39,375

 

(i) 15,000, (ii) 37,500

 

52,500

       

Mar.31

Balance c/d

   
         

(i) 40,000, (ii) 1,46,875

 

1,86,875

               
     

2,39,375

     

2,39,375

               

2015

     

2015

     

Apr.01

Balance b/d

   

Oct.01

Depreciation

 

7,500

 

(i) 40,000, (ii) 1,46,875

 

1,86,875

Oct.01

Machinery Disposal

 

32,500

       

2016

     
       

Mar.31

Depreciation (ii)

 

37,500

       

Mar.31

Balance c/d

 

1,09,375

               
     

1,86,875

     

1,86,875

               

Hence, the balance of machine account is ₹.1, 09,375

Machinery Disposal Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

 ₹

2015

     

2015

     

Oct.01

Machinery

 

32,500

Oct.01

Bank

 

25,000

       

Oct.01

Profit and Loss

 

7,500

     

32,500

     

32,500

               

Here we see that Loss on sale of machine account is ₹. 7,500.

8.The following balances appear in the books of Crystal Ltd, on Jan 01, 2015

Machinery account on 15, 00,000

Provision for depreciation account 5, 50,000

On April 01, 2015 a machinery which was purchased on January 01, 2012 for ₹ 2, 00,000 was sold for ₹ 75,000. A new machine was purchased on July 01, 2015 for ₹ 6, 00,000. Depreciation is provided on machinery at 20% p.a. on Straight line method and books are closed on December 31 every year. Prepare the machinery account and provision for depreciation account for the year ending December 31, 2015.

Machinery account and provision for depreciation account is created below:

Machinery Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2015

     

2015

     

Jan.01

Balance b/d

 

15,00,000

Apr.01

Machinery Disposal

 

2,00,000

 

(13,00,000 + 2,00,000)

           

Jul.01

Bank

 

6,00,000

Dec.31

Balance c/d

 

19,00,000

     

21,00,000

     

21,00,000

               

Hence, balance of machinery account is ₹, 19, 00,000.

Provision for Depreciation Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

 ₹

Date

Particulars

J.F.

Amount

 ₹

2015

     

2015

     

Apr.01

Machinery Disposal

 

1,30,000

Jan.01

Balance b/d

 

5,50,000

Apr.01

Balance c/d

 

7,50,000

Apr.01

Depreciation

 

10,000

       

Dec.31

Depreciation

   
         

(i) 2,60,000, (ii) 60,000

 

3,20,000

     

8,80,000

     

8,80,000

               

Working Note for the solution:

Machine Sold on July 01, 2015

(i)

Years

Opening Balance

 

Depreciation

 

Closing Balance

 

2012

2,00,000

40,000

=

1,60,000

 

2013

1,60,000

40,000

=

1,20,000

 

2014

1,20,000

40,000

=

80,000

 

2015

80,000

10,000

=

70,000

   

Accumulated Depreciation

=

1,30,000

   
             

Value on April 01, 2015

=

 

(70,000)

       

Less: Sale

=

 

75,000

       

Profit on sale of Machinery

   

5,000

       

From the above we see that profit on sale of machinery is ₹.5000.

Machinery Disposal Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount 

Date

Particulars

J.F.

Amount ₹

2015

     

2015

     

Apr.01

Machinery

 

2,00,000

Apr.01

Provision for Depreciation

 

1,30,000

Apr.01

Profit and Loss (Profit)

 

5,000

Apr.01

Bank

 

75,000

               
               
     

2,05,000

     

2,05,000

               

9.M/s. Excel Computers has a debit balance of ₹ 50,000 (original cost ₹ 1, 20,000) in computers account on April 01, 2010. On July 01, 2010 it purchased another computer costing ₹ 2, 50,000. One more computer was purchased on January 01, 2011 for ₹ 30,000. On April 01, 2014 the computer which has purchased on July 01, 2010 became obsolete and was sold for ₹ 20,000. A new version of the IBM computer was purchased on August 01, 2014 for ₹ 80,000. Show Computers account in the books of Excel Computers for the years ended on March 31 2011, 2012, 2013, 2014 and 2015. The computer is depreciated @10 p.a. on straight line method basis.

The computer account is created below:

Books of M/s Excel Computers

Computer Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount 

2010

     

2011

     

Apr.01

Balance b/d (i)

 

50,000

Mar.31

Depreciation

   

Jul.01

Bank (ii)

 

2,50,000

 

(i) 12,000, (ii) 18,750,

   

2011

       

(iii) 750

 

31,500

Jan.01

Bank (iii)

 

30,000

Mar.31

Balance c/d

   
         

(i) 38,000, (ii) 2,31,250,

   
         

(iii) 29,250

 

2,98,500

     

3,30,000

     

3,30,000

               

2011

     

2012

     

Apr.01

Balance b/d

   

Mar.31

Depreciation

   
 

(i) 38,000, (ii) 2,31,250,

     

(i) 12,000 (ii) 25,000,

   
 

(iii) 29,250

 

2,98,500

 

(iii) 3,000

 

40,000

       

Mar.31

Balance c/d

   
         

(i) 26,000 (ii) 2,06,250,

   
         

(iii) 26,250

 

2,58,500

     

2,98,500

     

2,98,500

               

2012

     

2013

     

Apr.01

Balance b/d

   

Mar.31

Depreciation

   
 

(i) 26,000 (ii) 2,06,250,

     

(i) 12,000, (ii) 25,000,

 

40,000

 

(iii) 26,250

 

2,58,500

Mar.31

(iii) 3,000

   
         

Balance c/d

   
         

(i) 14,000, (ii) 1,81,250,

   
         

(iii) 23,250

 

2,18,500

     

2,58,500

     

2,58,500

               

2013

     

2014

     

Apr.01

Balance b/d

   

Mar.31

Depreciation

   
 

(i) 14,000, (ii) 1,81,250,

     

(i) 12,000, (ii) 25,000,

 

40,000

 

(iii) 23,250

 

2,18,500

 

(iii) 3,000

   
       

Mar.31

Balance c/d

   
         

(i) 2,000, (ii) 1,56,250,

   
         

(iii) 20,250

 

1,78,500

     

2,18,500

     

2,18,500

               

2014

     

2014

     

Apr.01

Balance c/d

   

Apr.01

Bank (ii)

 

20,000

 

(i) 2,000, (ii) 1,56,250,

   

Apr.01

Profit and Loss (Loss)

 

1,36,250

 

(iii) 20,250

 

1,78,500

2015

     

Aug.01

Bank (iv)

 

80,000

Mar.31

Depreciation

 

10,333

         

(i) 2,000, (iii) 3,000, (iv) 5,333

   
       

Mar.31

Balance c/d

   
         

(iii) 17,250, (iv) 74,667

 

91,917

     

2,58,500

     

2,58,500

               

Here the closing balance is ₹. 91,917

10. Carriage Transport Company purchased 5 trucks at the cost of ₹ 2, 00,000 each on April 01, 2011. The company writes off depreciation @ 20% p.a. on original cost and closes its books on December 31, every year. On October 01, 2013, one of the trucks is involved in an accident and is completely destroyed. Insurance company has agreed to pay ₹ 70,000 in full settlement of the claim. On the same date the company purchased a second hand truck for ₹ 1, 00,000 and spent ₹ 20,000 on its overhauling. Prepare truck account and provision for depreciation account for the three years ended on December 31, 2013. Also give truck account if truck disposal account is prepared.

Truck account and provision for depreciation account is prepared as follows:

Books of Carriage Transport Company

Truck Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2011

     

2011

     

Apr.01

Bank

 

10,00,000

Dec.31

Balance c/d

 

10,00,000

     

10,00,000

     

10,00,000

               

2012

     

2012

     

Jan.01

Balance b/d

 

10,00,000

Dec.31

Balance c/d

 

10,00,000

     

10,00,000

     

10,00,000

               

2013

     

2013

     

Jan.01

Balance b/d

 

10,00,000

Oct.01

Truck Disposal

 

2,00,000

Oct.01

Bank

 

1,20,000

Dec.31

Balance c/d

 

9,20,000

     

11,20,000

     

11,20,000

               

Hence, the balance of truck account is ₹. 9, 20,000.

Provision for Depreciation Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2011

     

2011

     

Dec.31

Balance c/d

 

1,50,000

Dec.31

Depreciation

 

1,50,000

     

1,50,000

     

1,50,000

               

2012

     

2012

     

Dec.31

Balance c/d

 

3,50,000

Jan.01

Balance c/d

 

1,50,000

       

Dec.31

Depreciation

 

2,00,000

     

3,50,000

     

3,50,000

               

2013

     

2013

     

Oct.01

Truck Disposal

 

1,00,000

Jan.01

Balance b/d

 

3,50,000

Oct.01

Balance c/d

 

4,46,000

Oct.01

Depreciation (9 Months)

 

30,000

       

Dec.31

Depreciation

   
         

(1,60,000 + 6,000)

 

1,66,000

               
     

5,46,000

     

5,46,000

               

Working Note for the solution:

 

Opening Balance

 

Depreciation

 

Closing Balance

 

Apr.01, 2011

2,00,000

30,000

=

1,70,000

 

Jan.01, 2012

1,70,000

40,000

=

1,30,000

 

Jan.01, 2013

1,30,000

30,000

=

1,00,000

 
 

Accumulated Depreciation

=

1,00,000

     
 

Value on Oct.01, 2013

=

1,00,000

 

Less: Insurance Claim

=

70,000

 

Loss on Accident

 

30,000

 

Hence, a total loss of ₹.30, 000 due to the accident is observed and the balance of provision for depreciation account is ₹. 4, 46,000.

Truck Disposal Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount 

Date

Particulars

J.F.

Amount 

2013

     

2013

     

Oct.01

Truck

 

2,00,000

Oct.01

Provision for Depreciation

 

1,00,000

       

Oct.01

Insurance Co. (Insurance Claim)

 

70,000

       

Oct.01

Profit and Loss (Loss)

 

30,000

               
     

2,00,000

     

2,00,000

               

11.Saraswati Ltd. purchased a machinery costing ₹ 10, 00,000 on January 01, 2011. A new machinery was purchased on 01 May, 2012 for ₹ 15, 00,000 and another on July 01, 2014 for ₹ 12, 00,000. A part of the machinery which originally cost ₹ 2, 00,000 in 2011 was sold for ₹ 75,000 on October 31, 2014. Show the machinery account, provision for depreciation account and machinery disposal account from 2011 to 2015 if depreciation is provided at 10% p.a. on original cost and account are closed on December 31, every year.

Machinery account, provision for depreciation account and machinery disposal account is displayed below:

Books of Saraswati Ltd.

Machinery Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2011

     

2011

     

Jan.01

Bank (i)

 

10,00,000

       
 

(8,00,000 + 2,00,000)

   

Dec.31

Balance c/d

 

10,00,000

     

10,00,000

     

10,00,000

               

2012

     

2012

     

Jan.01

Balance b/d

 

10,00,000

Dec.31

Balance c/d

 

25,00,000

May.01

Bank (ii)

 

15,00,000

       
     

25,00,000

     

25,00,000

               

2013

     

2013

     

Jan.01

Balance b/d

 

25,00,000

Dec.31

Balance c/d

 

25,00,000

     

25,00,000

     

25,00,000

               

2014

     

2014

     

Jan.01

Balance b/d

 

25,00,000

Oct.31

Machinery Disposal

 

2,00,000

Jul.01

Bank (ii)

 

12,00,000

Dec.31

Balance c/d

   
         

(i) 8,00,000 (ii) 15,00,000

   
         

(iii) 12,00,000

 

35,00,000

     

37,00,000

     

37,00,000

               

2015

     

2015

     

Jan.01

Balance c/d

 

35,00,000

Dec.31

Balance c/d

 

35,00,000

     

35,00,000

     

35,00,000

               

 

Provision for Depreciation Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount ₹

Date

Particulars

J.F.

Amount 

2011

     

2011

     

Dec.31

Balance c/d

 

1,00,000

       
       

Dec.31

Depreciation (i)

 

1,00,000

     

1,00,000

     

1,00,000

               

2012

     

2012

     

Dec.31

Balance c/d

 

3,00,000

Jan.01

Balance c/d

 

1,00,000

       

Dec.31

Depreciation

   
         

(i) 1,00,000 (ii) 1,00,000

 

2,00,000

         

(8 months)

   
     

3,00,000

     

3,00,000

               

2013

     

2013

     

Dec.31

Balance b/d

 

5,50,000

Jan.01

Balance c/d

 

3,00,000

       

Dec.31

Depreciation

 

2,50,000

     

5,50,000

 

(i) 1,00,000 (ii) 1,50,000,

 

5,50,000

               

2014

     

2014

     

Oct.31

Machinery Disposal

 

76,667

Jan.01

Balance b/d

 

5,50,000

Dec.31

Balance c/d

 

7,80,000

Oct.31

Depreciation

 

16,667

       

Dec.31

Depreciation

   
         

(i) 80,000, (ii) 1,50,000,

   
         

(iii) 60,000

 

2,90,000

     

8,56,667

     

8,56,667

               

2015

     

2015

     

Dec.31

Balance c/d

 

11,30,000

Jan.01

Balance c/d

 

7,80,000

       

Dec.31

Depreciation

   
         

(i) 80,000, (ii) 1,50,000,

   
         

(iii) 1,20,000

 

3,50,000

     

11,30,000

     

11,30,000

               

 

Machinery Disposal Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2014

     

2014

     

Oct.31

Machinery

 

2,00,000

Oct.31

Depreciation

 

76,667

       

Oct.31

Bank

 

75,000

       

Oct.31

Profit and Loss (Loss)

 

48,333

               
     

2,00,000

     

2,00,000

               

Working Note for solution:

 

Opening Balance

 

Depreciation

 

Closing Balance

2011

2,00,000

20,000

=

1,80,000

2012

1,80,000

20,000

=

1,60,000

2013

1,60,000

20,000

=

1,40,000

2014

1,40,000

16,667

=

1,23,333

 

Accumulated Depreciation

 

76,667

   

 

Value on Oct. 01, 2014

1,23,333

Sale on Oct. 01, 2014

– 75,000

Loss on sale

₹ 48,333

Hence, we see that a loss of ₹. 48,333 is observed in sale of machine.

12. On July 01, 2011 Ashwani purchased a machine for ₹ 2, 00,000 on credit. Installation expenses ₹ 25,000 are paid by cheque. The estimated life is 5 years and its scrap value after 5 years will be ₹ 20,000. Depreciation is to be charged on straight line basis. Show the journal entry for the year 2011 and prepare necessary ledger accounts for first three years. 

The journal entry is prepared as follows:

Books of Ashwani

Journal

Date

 

Particulars

 

L.F.

Debit Amount ₹

Credit Amount ₹

2011

           

Jul.01

Machinery A/c

Dr.

 

2,25,000

 
   

To Creditors for Machinery A/c

     

2,00,000

   

To Bank A/c

     

25,000

 

(Machinery bought on credit and ₹ 25,000 paid

for installation through cheque)

     
           

2011

           

Dec.31

Depreciation A/c

Dr.

 

20,500

 
   

To Machinery A/c

     

20,500

 

(Depreciation charged on Machinery)

       
           

2011

           

Dec.31

Profit and Loss A/c

Dr.

 

20,500

 
   

To Depreciation A/c

     

20,500

 

(Depreciation transferred to Profit and Loss Account)

       
             

2012

           

Dec.31

Depreciation A/c

Dr.

 

41,000

 
   

To Machinery A/c

     

41,000

 

(Depreciation charged on Machinery)

       
             

2012

           

Dec.31

Profit and Loss A/c

Dr.

 

41,000

 
   

To Depreciation A/c

     

41,000

 

(Depreciation transferred to Profit and Loss Account)

       
             

2013

           

Dec.31

Depreciation A/c

Dr.

 

41,000

 
   

To Machinery A/c

     

41,000

 

(Depreciation charged on Machinery)

       

2013

           

Dec.31

Profit and Loss A/c

Dr.

 

41,000

 
   

To Depreciation A/c

     

41,000

 

(Depreciation transferred to Profit and Loss Account)

       
           
               

 

Ledger

Machinery Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount 

Date

Particulars

J.F.

Amount 

2011

     

2011

     

Jul.01

Creditors for Machinery

 

2,00,000

Dec.31

Depreciation

 

20,500

Jul.01

Bank

 

25,000

Dec.31

Balance c/d

 

2,04,500

     

2,25,000

     

2,25,000

               

2012

     

2012

     

Jan.01

Balance b/d

 

2,04,500

Dec.31

Depreciation

 

41,000

       

Dec.31

Balance c/d

 

1,63,500

     

2,04,500

     

2,04,500

               

2013

     

2013

     

Jan.01

Balance c/d

 

1,63,500

Dec.31

Depreciation

 

41,000

       

Dec.31

Balance c/d

 

1,22,500

     

1,63,500

     

1,63,500

               

Hence, balance of machine account is ₹. 1, 22,500.

Working Note for solution:

Calculation of annual depreciation is done below

Depreciation (p.a.)

=

(2,00,000 + 25,000 – 20,000)

5

 

=

₹ 41,000/annum

13. On October 01, 2010, a Truck was purchased for ₹ 8, 00,000 by Laxmi Transport Ltd. Depreciation was provided at 15% p.a. on the diminishing balance basis on this truck. On December 31, 2013 this Truck was sold for ₹ 5, 00,000. Accounts are closed on 31st March every year. Prepare a Truck Account for the four years.

The truck account is prepared below:

Books of Laxmi Transport Ltd.

Truck Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2010

     

2011

     

Oct.01

Bank

 

8,00,000

Mar.31

Depreciation (6 months)

 

60,000

       

Mar.31

Balance c/d

 

7,40,000

     

8,00,000

     

8,00,000

               

2011

     

2012

     

Apr.01

Balance b/d

 

7,40,000

Mar.31

Depreciation

 

1,11,000

       

Mar.31

Balance c/d

 

6,29,000

     

7,40,000

     

7,40,000

               

2012

     

2013

     

Apr.01

Balance b/d

 

6,29,000

Mar.31

Depreciation

 

94,350

       

Mar.31

Balance c/d

 

5,34,650

     

6,29,000

     

6,29,000

               

2013

     

2013

     

Apr.01

Balance b/d

 

5,34,650

Dec.31

Depreciation (9 months)

 

60,148

Dec.31

Profit and Loss (Profit)

 

25,498

Dec.31

Bank

 

5,00,000

     

5,60,148

     

5,60,148

               

Working Note for solution:

For 2010-2011

8, 00,000 x x = 60,000

For 2011- 2012

8, 00,000 – 60,000= 7, 40,000

7, 40,000 x = 1, 11,000

For 2012-2013

7, 40,000- 1, 11,000 = 6, 29,000

6, 29,000 x = 94,350

For 2013- 2014

6, 29,000 – 94,350 = 5, 34,650

5, 34,650 x x = 60,148

Book Value = 5, 34,650 – 60,148

= 4, 74,502

Profit on sale of truck = Sale Price – Book Value

= 5, 00,000 – 4, 74,502 = 25,498

14.Kapil Ltd. purchased a machinery on July 01, 2011 for ₹ 3, 50,000. It purchased two additional machines, on April 01, 2012 costing ₹ 1, 50,000 and on October 01, 2012 costing ₹ 1, 00,000. Depreciation is provided @10% p.a. on straight line basis. On January 01, 2013, first machinery become useless due to technical changes. This machinery was sold for ₹ 1, 00,000, prepare machinery account for 4 years on the basis of calendar year.

The machinery account is created below:

Books of Kapil Ltd. 

Machinery Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2011

     

2011

     

Jul.01

Bank (i)

 

3,50,000

Dec.31

Depreciation (6 months)

 

17,500

       

Dec.31

Balance c/d

 

3,32,500

     

3,50,000

     

3,50,000

               

2012

     

2012

     

Jan.01

Balance c/d

 

3,32,500

Dec.31

Depreciation

   

Apr.01

Bank (ii)

 

1,50,000

 

(i) 35,000 (ii) 11,250 (9 months),

   

Oct.01

Bank (iii)

 

1,00,000

 

(iii) 2,500 (3 months)

 

48,750

       

Dec.31

Balance c/d

   
         

(i) 2,97,500, (ii) 1,38,750,

   
         

(iii) 97,500

 

5,33,750

               
     

5,82,500

     

5,82,500

               

2013

     

2013

     

Jan.01

(i) 2,97,500, (ii) 1,38,750,

   

Jan.01

Bank (i)

 

1,00,000

 

(iii) 97,500

 

5,33,750

Jan.01

Profit and Loss (Loss)

 

1,97,500

       

Dec.31

Depreciation

   
         

(ii) 15,000 (iii) 10,000

 

25,000

       

Dec.31

Balance c/d

   
         

(ii) 1,23,750, (iii) 87,500

 

2,11,250

               
     

5,33,750

     

4,33,750

               

2014

     

2014

     

Jan.01

Balance c/d

 

2,11,250

Dec.31

Depreciation

   
 

(ii) 1,23,750, (iii) 87,500

   

Dec.31

(ii) 15,000, (iii) 10,000

 

25,000

         

Balance c/d

   
         

(ii) 1,08,750, (iii) 77,500

 

1,86,250

     

2,11,250

     

2,11,250

2015

             

Jan.01

Balance b/d

 

1,86,250

       
               

Hence, balance of machine account is ₹. 1, 86,250 and loss on sale of machine is ₹. 1, 97,500

15. On January 01, 2011, Satkar Transport Ltd, purchased 3 buses for ₹ 10, 00,000 each. On July 01, 2013, one bus was involved in an accident and was completely destroyed and ₹ 7, 00,000 were received from the Insurance Company in full settlement. Depreciation is written off @15% p.a. on diminishing balance method. Prepare bus account from 2011 to 2014. Books are closed on December 31 every year.

The bus account is prepared below:

Books of Satkar Transport Ltd.

Bus Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount 

Date

Particulars

J.F.

Amount 

2011

     

2011

     

Jan.01

Bank

 

30,00,000

Dec.31

Depreciation

 

4,50,000

       

Dec.31

Balance c/d

 

25,50,000

               
     

30,00,000

     

30,00,000

               

2012

     

2012

     

Jan.01

Balance b/d

 

25,50,000

Dec.31

Depreciation

 

3,82,500

       

Dec.31

Balance c/d

 

21,67,500

     

25,50,000

     

25,50,000

               

2013

     

2013

     

Jan.01

Balance b/d

 

21,67,500

July.01

Depreciation (6 months)

 

54,187

July.01

Profit and Loss (Profit)

 

31,687

July.01

Insurance Co. (Insurance claim)

 

7,00,000

       

Dec.31

Depreciation

 

2,16,750

       

Dec.31

Balance c/d

 

12,28,250

     

21,99,187

     

21,99,187

               

2014

     

2014

     

Jan.01

Balance c/d

 

12,28,250

Dec.31

Depreciation

 

1,84,237

       

Dec.31

Balance c/d

 

10,44,013

     

12,28,250

     

12,28,250

               

Hence, the bus account balance is ₹. 10, 44,013.

16. On October 01, 2011 Juneja Transport Company purchased 2 Trucks for ₹ 10, 00,000 each. On July 01, 2013, One Truck was involved in an accident and was completely destroyed and ₹ 6, 00,000 were received from the insurance company in full settlement. On December 31, 2013 another truck was involved in an accident and destroyed partially, which was not insured. It was sold off for ₹ 1, 50,000. On January 31, 2014 Company purchased a fresh truck for ₹ 12, 00,000. Depreciation is to be provided at 10% p.a. on the written down value every year. The books are closed every year on March 31. Give the truck account from 2011 to 2014.

The truck account is prepared below:

Books of Juneja Transport Company

 Truck Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

 ₹

Date

Particulars

J.F.

Amount 

2011

     

2012

     

Oct.01

Bank

 

20,00,000

Mar.31

Depreciation

 

1,00,000

       

Mar.31

Balance c/d

 

19,00,000

               
     

20,00,000

     

20,00,000

               

2012

     

2013

     

Apr.01

Balance b/d

 

19,00,000

Mar.31

Depreciation

 

1,90,000

       

Mar.31

Balance c/d

 

17,10,000

     

19,00,000

     

19,00,000

               

2013

     

2013

     

Apr.01

Balance b/d

 

17,10,000

Jul.01

Depreciation (3 Month on one Truck)

 

21,375

       

Jul.01

Bank (Insurance Claim)

 

6,00,000

2014

     

Jul.01

Profit and Loss (loss)

 

2,33,625

Jan.31

Bank

 

12,00,000

       
       

Dec.31

Depreciation (9 Month on II Truck)

 

64,125

       

Dec.31

Bank

 

1,50,000

       

Dec.31

Profit and Loss (Loss)

 

6,40,875

       

2014

     
       

Mar.31

Depreciation (2 Months)

 

20,000

       

Mar.31

Balance c/d

 

11,80,000

               
     

29,10,000

     

29,10,000

               

Working Note:

For 1st Truck

 

Opening Balance

Depreciation

=

Closing Balance

Oct.01, 2011

10,00,000

50,000 (6 Months)

=

9,50,000

Apr.01, 2012

9,50,000

95,000

=

8,55,000

Apr.01, 2013

8,55,000

21,375 (3 Months)

=

8,33,625

 

Value on July 01, 2013

=

8,33,625

Insurance Claim

=

–  6,00,000

Loss on 1st Truck

=

₹ 2,33,625

For 2nd Truck

 

Opening Balance

Depreciation

=

Closing Balance

Oct.01, 2012

10,00,000

50,000 (6 Months)

=

9,50,000

Apr.01, 2012

9,50,000

95,000

=

8,55,000

Apr.01, 2013

8,55,000

64,125 (9 Months)

=

7,90,875

 

Value on Dec.31, 2013

=

7,90,875

Sale of Truck

=

–  1,50,000

Loss on 2nd Truck

=

₹ 6,40,875

Hence, the loss on truck 1 and truck 2 are ₹ 2, 33,625 and ₹ 6, 40,875 respectively.

17. A Noida based Construction Company owns 5 cranes and the value of this asset in its books on April 01, 2017 is ₹ 40,00,000. On October 01, 2017 it sold one of its cranes whose value was ₹ 5, 00,000 on April 01, 2017 at a 10% profit. On the same day it purchased 2 cranes for ₹ 4, 50,000 each. Prepare cranes account. It closes the books on December 31 and provides for depreciation on 10% written down value.

The cranes account is created below:

Cranes Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2017

     

2017

     

Apr.01

Machinery (35,00,000 + 5,00,000)

 

40,00,000

Oct.01

Depreciation

 

25,000

Oct.01

Profit and Loss (Profit)

 

47,500

Oct.01

Bank

 

5,22,500

Oct.01

Bank

 

9,00,000

Dec.31

Depreciation

   
         

35,00,000 ×

10

×

9

= 2,62,500

   

100

12

         

9,00,000 ×

10

×

6

= 22,500

 

2,85,000

100

12

       

Dec.31

Balance c/d

   
             

41,15,000

               
     

49,47,500

     

49,47,500

               

Working Note:

Original cost of Crane 1 = 5, 00,000

Accumulated Depreciation = Depreciation in 2011 – 2012

= 25,000

Book Value as on Oct 01, 2011

= Original Cost – Depreciation till Oct 01, 2011

= 5, 00,000 – 25,000

= 4, 75,000

Selling Price

= Book Value + 10% of Book Value

= 4, 75,000 + 10% of 4, 75,000

= 4, 75,000 + 47,500

= 5, 22,500

Profit on crane 1

= Sale Price – Book Value

= 5, 22,500 – 4, 75,000

= 47,500

18. Shri Krishnan Manufacturing Company purchased 10 machines for ₹ 75,000 each on July 01, 2014. On October 01, 2016, one of the machines got destroyed by fire and an insurance claim of ₹ 45,000 was admitted by the company. On the same date another machine is purchased by the company for ₹ 1, 25,000. The company writes off 15% p.a. depreciation on written down value basis. The company maintains the calendar year as its financial year. Prepare the machinery account from 2014 to 2017.

The machinery account is prepared below:

Books of Shri Krishna Manufacturing Company

Machinery Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2014

     

2014

     

Jul.01

Bank

 

7,50,000

Dec.31

Depreciation

 

56,250

       

Dec.31

Balance c/d

 

6,93,750

               
     

7,50,000

     

7,50,000

               

2015

     

2015

     

Jan.01

Balance b/d

 

6,93,750

Dec.31

Depreciation

 

1,04,063

       

Dec.31

Balance c/d

 

5,89,687

     

6,93,750

     

6,93,750

               

2016

     

2016

     

Jan.01

Balance b/d

 

5,89,687

Oct.01

Depreciation (9 months

 

6,634

         

for one machine)

   

Oct.01

Bank

 

1,25,000

Oct.01

Insurance Co.

 

45,000

       

Oct.01

Profit and Loss (Loss)

 

7,335

       

Dec.31

Depreciation

   
         

(i) 79,608, (ii) 4,688

 

84,296

       

Dec.31

Balance c/d

   
         

(i) 4,51,110, (ii) 1,20,312

 

5,71,422

     

7,14,687

     

7,14,687

               

2017

     

2017

     

Jan.01

Balance b/d

   

Dec.31

Depreciation

   
 

(i) 4,51,110, (ii) 1,20,312

 

5,71,422

 

(i) 67,667, (ii) 18,047

 

85,714

       

Dec.31

Balance c/d

   
         

(i) 3,83,443, (ii) 1,02,265

 

4,85,708

               
     

5,71,422

     

5,71,422

               

 

Working Note:

Machine Costing ₹ 75,000 sold on Oct.01, 2016

 

Opening Balance

Depreciation

=

Closing Balance

Jul.01, 2014

75,000

5,625

(6 months)

=

69,375

Jan.01, 2015

69,375

10,406

=

58,969

Jan.01, 2016

58,969

6,634

(9 months)

=

52,335

 

Value on Oct.01, 2016

 

52,335

Insurance Claim

 

– 45,000

Loss

 

₹ 7,335

Hence we see that loss on vehicle claim was ₹. 7,335 and the balance is ₹, 4, 85,708

19. On January 01, 2014, a Limited Company purchased machinery for ₹ 20, 00,000. Depreciation is provided @15% p.a. on diminishing balance method. On March 01, 2016, one fourth of machinery was damaged by fire and ₹ 40,000 were received from the insurance company in full settlement. On September 01, 2016 another machinery was purchased by the company for ₹ 15, 00,000.

Write up the machinery account from 2016 to 2017. Books are closed on December 31, every year.

The machinery account is prepared as follows:

Machinery Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2016

     

2016

     

Jan.01

Balance b/d (i)

(10,83,750 + 3,61,250)

 

14,45,000

Mar.01

Depreciation (1/4 Machine

for 2 Months)

 

9,031

Sep.01

Bank (ii)

 

15,00,000

Mar.01

Bank

 

40,000

       

Mar.01

Profit and Loss

 

3,12,219

       

Dec.31

Depreciation (i)

   
         

(i) 1,62,563 (3/4th of  machine),

(ii) 75,000

 

2,37,563

       

Dec.31

Balance c/d

   
         

(i) 9,21,187, (ii) 14,25,000

 

23,46,187

               
               
     

29,45,000

     

29,45,000

               

2017

     

2017

     

Jan.01

Balance b/d

   

Dec.31

Depreciation

   
 

(i) 9,21,187, (ii) 14,25,000

 

23,46,187

Dec.31

(i) 1,38,177, (ii) 2,13,750

 

3,51,927

         

Balance c/d

   
         

(i) 7,83,009, (ii) 12,11,250

 

19,94,260

     

23,46,187

     

23,46,187

               

 

Working Note:

 

Machine (i)

           

Years

January 01

 

Depreciation

(15% p.a.)

=

Closing Balance

2014

20,00,000

3,00,000

=

17,00,000

2015

17,00,000

2,55,000

=

14,45,000

2016

14,45,000

       

1/4th of Machine that was damaged (i)

           

Years

Opening Balance

 

Depreciation

(15% p.a.)

=

Closing Balance

2014

5,00,000

75,000

=

4,25,000

2015

4,25,000

63,750

=

3,61,250

2016

3,61,250

9,031 (2 months)

=

3,52,219

 

Value on 1 Mar. 2016

=

3,52,219

Insurance Claim

=

40,000

Loss

 

₹ 3,12,219

Hence, the loss on one-fourth of 1st machine is ₹, 3, 12,219 and the balance for machine account is ₹.19, 94,260.

  1. A Plant was purchased on 1st July, 2015 at a cost of ₹ 3, 00,000 and ₹ 50,000 were spent on its installation. The depreciation is written off at 15% p.a. on the straight line method. The plant was sold for ₹ 1, 50,000 on October 01, 2017 and on the same date a new Plant was installed at the cost of ₹ 4, 00,000 including purchasing value. The accounts are closed on December 31 every year.

Show the machinery account and provision for depreciation account for 3 years

Machinery account and provision for depreciation account is shown below:

Plant Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2015

     

2015

     

July.01

Bank

 

3,50,000

Dec.31

Balance c/d

 

3,50,000

     

3,50,000

     

3,50,000

               

2016

     

2016

     

Jan.01

Balance b/d

 

3,50,000

       
       

Dec.31

Balance c/d

 

3,50,000

     

3,50,000

     

3,50,000

               

2017

     

2017

     

Jan.01

Balance b/d

 

3,50,000

Oct.01

Provision for Depreciation

 

1,18,125

Oct.01

Bank

 

4,00,000

Oct.01

Bank

 

1,50,000

       

Oct.01

Profit and Loss

 

81,875

       

Dec.31

Balance c/d

 

4,00,000

     

7,50,000

     

7,50,000

               

 

Provision for Depreciation Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2015

     

2015

     

Dec.31

Balance c/d

 

26,250

Dec.31

Depreciation

 

26,250

     

26,250

     

26,250

               

2016

     

2016

     

Dec.31

Balance b/d

 

78,750

Jan.01

Balance c/d

 

26,250

       

Dec.31

Depreciation

 

52,500

     

78,750

     

78,750

               

2017

     

2017

     

Oct.01

Plant

 

1,18,125

Jan.01

Balance b/d

 

78,750

Dec.31

Balance c/d

 

15,000

Oct.01

Depreciation (i) (9 months)

 

39,375

       

Dec.31

Depreciation (ii) (3 months)

 

15,000

     

1,33,125

     

1,33,125

               

Hence, the loss on sale of plant is ₹ 81,875 and the balance of machine account is ₹. 4, 00,000.

21. An extract of Trial balance from the books of Tahiliani and Sons Enterprises on March 31, 2017 is given below:

Name of the Account

Debit Amount

Credit Amount

 

 

 

Sundry debtors

50,000

 

Bad debts

6,000

 

Provision for doubtful debts

 

4,000

 

Additional Information:

  •          Bad Debts proved bad; however, not recorded amounted to ₹ 2,000.
  •          Provision is to be maintained at 8% of debtors

Give necessary accounting entries for writing off the bad debts and creating the provision for doubtful debts account. Also, show the necessary accounts.

The solution is given below:

Date

 

Particulars

 

L.F.

Debit Amount ₹

Credit Amount ₹

             
 

Bad Debt A/c

Dr.

 

2,000

 
   

To Debtors A/c

     

2,000

 

(Further bad debt charged from Debtors Account)

       
           
 

Provision for Doubtful Debt A/c

Dr.

 

8,000

 
   

To Bad Debt A/c

     

8,000

 

(Amount of bad debt transferred to

Provision for Doubtful Debt Account)

     
           
 

Profit and Loss A/c

Dr.

 

7,840

 
   

To Provision for Doubtful Debt A/c

     

7,840

 

(Amount of Provision for Doubtful Debt transferred

to Profit and Loss Account)

     
           

 

Bad Debt Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount 

Date

Particulars

J.F.

Amount

 ₹

2017

     

2017

     

Mar.31

Balance b/d

 

6,000

Mar.31

Provision for Doubtful

   

Mar.31

Debtors

 

2,000

 

Debt

 

8,000

     

8,000

     

8,000

               

 

Debtors Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount 

Date

Particulars

J.F.

Amount

 ₹

2017

     

2017

     

Mar.31

Balance b/d

 

50,000

Mar.31

Bad Debt

 

2,000

       

Mar.31

Balance c/d

 

48,000

     

50,000

     

50,000

               

 

Provision for Doubtful Debts Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount 

Date

Particulars

J.F.

Amount

 ₹

2017

     

2017

     

31 Mar.

Bad Debt (6,000 + 2,000)

 

8,000

Apr.01

Balance b/d

 

4,000

31 Mar.

Balance c/d (8% of 50,000-2,000)

 

3,840

Mar.31

Profit and Loss

 

7,840

     

11,840

     

11,840

               

Hence, the new provision for bad debts is ₹, 3,840 and profit and loss account balance is ₹.7840.

21. The following information is extracted from the Trial Balance of M/s Nisha Traders on 31 March 2017.

Sundry Debtors

80,500

Bad Debts

1,000

Provision for Bad Debts

5,000

 

Additional Information

Bad Debts ₹ 500

Provision is to be maintained at 2% of Debtors

Prepare bad debts account, Provision for bad debts account and profit and loss account.

The bad debts account, Provision for bad debts account and profit and loss account are shown below:

Bad Debt Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2017

     

2017

     

Mar.31

Balance b/d

 

1,000

Mar.31

Provision for Bad Debts

 

1,500

Mar.31

Debtors

 

500

       
     

1,500

     

1,500

               

 

Provision for Bad debt Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount

2017

     

2017

     

Mar.31

Bad Debt

 

1,500

Mar.31

Balance b/d

 

5,000

Mar.31

Profit and Loss

 

1,900

       

Mar.31

Balance c/d (2% of 80,500-500)

 

1,600

       
     

5,000

     

5,000

               

 

Profit and Loss Account

Dr.

           

Cr.

Date

Particulars

J.F.

Amount

Date

Particulars

J.F.

Amount 

       

2017

     
       

Mar.31

Provision for Bad Debts

 

1,900

               
               

Hence, the new provision is ₹. 1600 and the profit and loss account shows as a credit of ₹.1900

Access Other Chapters and NCERT Solutions For Class 11 Accountancy Chapter 7 

You can download the PDF of NCERT Solutions Class 11 Accountancy for Chapter 7 other chapters:

Chapter 1 Introduction to Accounting 

Chapter 2 Theory Base of Accounting 

Chapter 3 Recording of Transactions 1 

Chapter 4 Recording of Transcations 2 

Chapter-5 Bank Reconciliation Statement

Chapter-6 Trial Balance And Rectification Of Errors

Chapter-8 Bill Of Exchange

Chapter-9 Financial Statements – 1

Chapter-10 Financial Statements – 2

Chapter-11 Accounts From Incomplete Records

Chapter-12 Applications of Computers in Accounting

Chapter-13 Computerised Accounting System

Chapter-14 Depreciation

Chapter-15 Bank Reconciliation Statement

We have provided all the important above in the article regarding the CBSE NCERT Solutions For Class 11 Accountancy Chapter-7. If you have any queries, you can mention them in the comment section.

FAQ (Frequently Asked Questions):NCERT Solutions For Class 11 Accountancy Ch-7

What are the objectives of accounting?

Accounting is a discipline that enables a company to successfully maintain and track its books of accounts. The following is a list of accounting’s goals.
To figure out how much it costs to make a specific item.
To determine if a company made a net profit or a net loss during a specific time period.
To find out if there is any fraud or money missing.
To keep track of spending and revenue in a separate account.
To determine the Cash Balance on a specific day.
To determine the current status of assets and liabilities on a given day.
period.
To assist the management department in the formulation of policies that will benefit the company.

What do you mean by asset and what are the different types of assets?

A business organisation must have assets that add value to the specific business aim in order to function in a competitive market. In accounting, an asset is any resource with economic value that is owned by a single person or a group of people with the goal of extracting more value.
The following are the characteristics of an asset.
The only person who owns and controls an asset is the owner.
In the future, an asset may or may not become a source of funding.
Current assets, non-current assets, physical assets, intangible assets, operating assets, non-operating assets, and fictitious assets are the different categories of assets.

Define a Cash Book.

A Cash Book is a separate book that is used to record only one sort of transaction. Thousands of transactions are recorded each year, and companies utilize a Cash Book to manage the workload of maintaining those transactions.

What are the different sorts of cash books?

There are several types of Cash Books, as listed below:
A single-column cash book is a simple cash book.
A cash book with two columns.
A cash book with three columns.
A petty cash book.
 

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