Class 11 Accountancy Financial Accounting I Chapter 7

NCERT Solutions for Class 11 Accountancy Financial Accounting I Chapter 7: Depreciation, Provisions and Reserves

Class	Subject	Book	Chapter	Session	Questions covered
XI	Accountancy	Financial Accounting I (NCERT)	7 – Depreciation, Provisions and Reserves	2026-27	44 of 44

Chapter at a glance

Idea	Key point
Depreciation	Decline in value of a tangible fixed asset; allocation of depreciable cost over its useful life
Causes	Wear and tear, expiry of legal rights, obsolescence, abnormal factors
Cost of asset	Purchase price + freight, installation, registration, initial repairs of second-hand asset
Straight line (SLM)	Equal amount every year: or % of original cost
Written down value (WDV)	Fixed % of the opening book value; amount falls every year
Recording	(i) Depreciation credited to asset account, or (ii) credited to Provision for Depreciation (asset kept at cost)
Disposal	Book value compared with sale proceeds → profit or loss to P&L; an Asset Disposal Account may be used
Provision	Charge against profit for a known liability/loss of uncertain amount (e.g. doubtful debts)
Reserve	Appropriation of profit; revenue (general, specific) or capital reserve; secret reserve

Depreciation for part of a year is charged in proportion to the months the asset is used.

Test Your Understanding

Question TYU – I

State whether the following statements are true or false:
1. Depreciation is a non-cash expense. 2. Depreciation is also charged on current assets. 3. Depreciation is decline in the market value of tangible fixed assets. 4. The main cause of depreciation is wear and tear caused by its usage. 5. Depreciation must be charged so as to ascertain true profit or loss of the business. 6. Depletion term is used in case of intangible assets. 7. Depreciation provides fund for replacement. 8. When market value of an asset is higher than book value, depreciation is not charged. 9. Depreciation is charged to reduce the value of asset to its market value. 10. If adequate maintenance expenditure is incurred, depreciation need not be charged.

Answer

1	2	3	4	5	6	7	8	9	10
T	F	F	T	T	F	T	F	F	F

2: only fixed (depreciable) assets are depreciated. 3: depreciation is a decline in book value, not market value. 6: depletion relates to natural resources; amortisation to intangibles. 8, 9, 10: depreciation is the allocation of cost, so it is charged whatever the market value or maintenance.

Question TYU – II

Basaria Confectioner bought a cold storage plant on July 01, 2014 for ₹ 1,00,000. Compare the amount of depreciation charged for first three years using: 1. Rate of depreciation @ 10% on original cost basis; 2. Rate of depreciation @ 10% on written down value basis; 3. Also, plot the computed amount of depreciation on a graph.

Answer

Accounts are taken as closed on March 31; the first year has 9 months (July–March).

Year	Original cost (SLM) @ 10%	Written down value @ 10%
2014-15 (9 months)	1,00,000 × 10% × 9/12 = 7,500	1,00,000 × 10% × 9/12 = 7,500
2015-16	10,000	92,500 × 10% = 9,250
2016-17	10,000	83,250 × 10% = 8,325
Total	27,500	25,075

SLM gives a constant charge after the first part-year; WDV gives a falling charge. (The textbook checklist’s 8,305 for the third year comes from a slip in the WDV of ₹ 83,250.)

Question TYU – III

I. State with reasons whether the following statements are True or False: (i) Making excessive provision for doubtful debts builds up the secret reserve in the business. (ii) Capital reserves are normally created out of free or distributable profits. (iii) Dividend equalisation reserve is an example of general reserve. (iv) General reserve can be used only for some specific purposes. (v) ‘Provision’ is a charge against profit. (vi) Reserves are created to meet future expenses or losses the amount of which is not certain. (vii) Creation of reserve reduces taxable profits of the business.
II. Fill in the correct words: (i) Depreciation is decline in the value of …… (ii) Installation, freight and transport expenses are a part of …… (iii) Provision is a …… against profit. (iv) Reserve created for maintaining a stable rate of dividend is termed as ……

Answer

No.	T/F	Reason
(i)	True	Excess provision understates profit and assets, creating a hidden reserve
(ii)	False	Capital reserves come from capital profits (e.g. premium on issue of shares), not from distributable profits
(iii)	False	It is a specific reserve, created for one purpose
(iv)	False	General reserve is not earmarked; it can be used for any purpose
(v)	True	A provision is debited to P&L before arriving at profit
(vi)	False	That describes a provision; reserves are appropriations to strengthen the business
(vii)	False	Reserves are created after profit is ascertained, so taxable profit is unchanged

II. (i) fixed (tangible) assets (ii) the cost of the asset (iii) charge (iv) dividend equalisation reserve

Questions for Practice – Short Answers

Question SA – Q1

What is ‘Depreciation’?

Answer

Depreciation is the decline in the value of a tangible fixed asset due to use, passage of time or obsolescence. In accounting it is the systematic allocation of the depreciable cost (cost less residual value) of a fixed asset over its useful life, charged as an expense to the profit and loss account each year.

Question SA – Q2

State briefly the need for providing depreciation.

Answer

Matching — the cost of the asset is matched with the revenue it helps earn, giving the true profit.
True financial position — assets are shown at a fair book value in the balance sheet.
Correct cost of production — depreciation is part of the cost.
Retention of funds — profits equal to depreciation are kept back, helping replacement.
Legal and tax requirements — the Companies Act and Income Tax Act require it.

Question SA – Q3

What are the causes of depreciation?

Answer

Wear and tear due to use and passage of time.
Expiry of legal rights — patents, leases, copyrights lose value as their term runs out.
Obsolescence — new technology or changes in demand make an asset outdated.
Abnormal factors — accidents, fire, floods.

Question SA – Q4

Explain basic factors affecting the amount of depreciation.

Answer

Cost of the asset — purchase price plus all expenses to make it ready for use.
Estimated net residual value — expected sale value at the end of its life less disposal costs.
Depreciable cost — cost minus net residual value.
Estimated useful life — period over which the asset is expected to be used.

Question SA – Q5

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

Answer

Basis	Straight line method	Written down value method
Base	Original cost	Book value at the beginning of the year
Amount	Same every year	Decreases every year
Book value	Can become zero (or scrap value)	Never becomes zero
Total charge (dep. + repairs)	Rises in later years	Roughly even over the years
Suitable for	Assets with little repair, short life, patents, leases	Plant and machinery, vehicles with rising repairs
Tax	Not generally accepted by income tax	Accepted by income tax law

Question SA – Q6

“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.

Answer

The written down value method. Under it depreciation is high in early years and falls later, while repairs are low early and rise later; the total charge to the profit and loss account stays fairly even over the life of the asset.

Question SA – Q7

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

Answer

Profit and loss account: depreciation is debited as an expense, reducing net profit (it is a non-cash expense).

Balance sheet: the asset is shown at cost less depreciation (or accumulated depreciation), so its book value is reduced year by year.

Question SA – Q8

Distinguish between ‘provision’ and ‘reserve’.

Answer

Basis	Provision	Reserve
Nature	Charge against profit	Appropriation of profit
Purpose	Known liability / loss of uncertain amount	Strengthen financial position, meet contingencies
Profit	Must be created even if there is a loss	Created only when there is profit
Shown in balance sheet	Deducted from asset or shown as liability	Shown under reserves and surplus
Distribution	Cannot be distributed	Revenue reserve can be used for dividend

Question SA – Q9

Give four examples each of ‘provision’ and ‘reserves’.

Answer

Provisions: depreciation, doubtful debts, discount on debtors, taxation, repairs and renewals.

Reserves: general reserve, dividend equalisation reserve, workmen compensation reserve, investment fluctuation reserve, capital reserve, debenture redemption reserve.

Question SA – Q10

Distinguish between ‘revenue reserve’ and ‘capital reserve’.

Answer

Basis	Revenue reserve	Capital reserve
Source	Revenue (normal trading) profits	Capital profits (premium on shares, profit on sale of fixed assets, profit prior to incorporation)
Purpose	Any purpose — dividends, expansion, contingencies	Writing off capital losses, issuing bonus shares
Distribution as dividend	Possible	Normally not possible

Question SA – Q11

Give four examples each of ‘revenue reserve’ and ‘capital reserves’.

Answer

Revenue reserves: general reserve, dividend equalisation reserve, workmen compensation reserve, investment fluctuation reserve, debenture redemption reserve.

Capital reserves: premium on issue of shares/debentures, profit on sale of fixed assets, profit on reissue of forfeited shares, profit prior to incorporation, profit on revaluation of assets.

Question SA – Q12

Distinguish between ‘general reserve’ and ‘specific reserve’.

Answer

Basis	General reserve	Specific reserve
Purpose	No particular purpose; strengthens financial position	Created for a particular purpose
Use	Any purpose	Only for the stated purpose
Examples	General reserve	Dividend equalisation, debenture redemption, workmen compensation, investment fluctuation reserves

Question SA – Q13

Explain the concept of ‘secret reserve’.

Answer

A secret reserve is a reserve that is not disclosed in the balance sheet. It is created by understating profits and assets or overstating liabilities — for example, by charging excessive depreciation, making excessive provision for doubtful debts, or treating capital expenditure as revenue. It strengthens the business and avoids competition or demands for higher dividends, but it reduces transparency; companies are restricted from creating secret reserves.

Questions for Practice – Long Answers

Question LA – Q1

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

Answer

Concept: Every tangible fixed asset (except land) loses value as it is used and as time passes. Depreciation is the portion of the cost of such an asset that is treated as an expense of a year. It is a process of allocation of cost, not of valuation. It is a non-cash expense: no cash goes out when it is charged.

Need

To match costs with revenues and find the true profit.
To show assets at fair values in the balance sheet.
To retain funds in the business for replacement.
To compute the correct cost of production.
To comply with legal and tax requirements.

Causes

Wear and tear due to use or passage of time.
Expiry of legal rights (patents, leases).
Obsolescence — technological or market changes.
Abnormal factors — accidents, natural calamities.

Question LA – Q2

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.

Answer

Straight line (fixed instalment / original cost) method: an equal amount is charged every year.

Financial Accounting I Chapter 7: Depreciation, Provisions and Reserves

Merits: simple, can reduce the asset to scrap value exactly. Limitations: total charge (depreciation + repairs) rises over time; not accepted by income tax law.

Written down value (reducing balance) method: a fixed percentage is applied to the opening book value each year, so the amount falls every year.

Merits: even burden of depreciation plus repairs; accepted by tax law; suits assets that lose value quickly. Limitations: asset never becomes zero; choosing the rate is difficult.

Differences

Basis	SLM	WDV
Base	Original cost	Opening book value
Annual amount	Constant	Decreasing
Book value at end	Zero/scrap value	Never zero
Repairs + depreciation	Increase over time	Fairly even

Where useful: SLM — leases, patents, furniture, buildings, assets with low repair costs. WDV — plant and machinery, vehicles, computers, assets with rising repair costs or fast obsolescence.

Question LA – Q3

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

Answer

Method 1 — Depreciation charged to the asset account. The asset account is credited every year, so it shows the written down value.

Event	Entry
Purchase	Asset A/c Dr. To Bank A/c
Charging depreciation	Depreciation A/c Dr. To Asset A/c
Transfer to P&L	Profit and Loss A/c Dr. To Depreciation A/c
Sale	Bank A/c Dr. To Asset A/c; profit or loss transferred to P&L

Method 2 — Provision for depreciation (accumulated depreciation) account. The asset stays at cost; depreciation is accumulated in a separate account.

Event	Entry
Charging depreciation	Depreciation A/c Dr. To Provision for Depreciation A/c
Transfer to P&L	Profit and Loss A/c Dr. To Depreciation A/c
Sale — transfer of accumulated depreciation	Provision for Depreciation A/c Dr. To Asset A/c (or To Asset Disposal A/c)
Sale proceeds	Bank A/c Dr. To Asset A/c (or Asset Disposal A/c)
Loss / profit on sale	P&L A/c Dr. To Asset A/c, or Asset A/c Dr. To P&L A/c

In the balance sheet the asset is shown at cost less the provision under Method 2, which gives fuller information.

Question LA – Q4

Explain determinants of the amount of depreciation.

Answer

Cost of the asset — invoice price plus freight, transit insurance, installation, registration and initial repairs; e.g. a machine of ₹ 50,000 with ₹ 5,000 installation costs ₹ 55,000.
Estimated net residual value — expected realisable value at the end of the useful life less disposal expenses.
Depreciable cost — cost minus net residual value; this is the amount to be written off.
Estimated useful life — the period (years, hours, units) over which the asset will be used; determined by physical life, legal life and expected obsolescence.

For example, cost ₹ 2,00,000, residual value ₹ 20,000, life 10 years gives SLM depreciation of ₹ 18,000 a year.

Question LA – Q5

Name and explain different types of reserves in details.

Answer

Revenue reserve — created out of revenue profits; available for any purpose including dividends.
- General reserve — not for any specific purpose; strengthens financial position.
- Specific reserves — for a particular purpose: dividend equalisation reserve (to keep dividends stable), workmen compensation reserve, investment fluctuation reserve, debenture redemption reserve.
Capital reserve — created out of capital profits such as premium on issue of shares, profit on sale of fixed assets, profit on reissue of forfeited shares, profit prior to incorporation. Used to write off capital losses or issue bonus shares; not distributed as dividend.
Secret reserve — hidden reserve created by understating assets or overstating liabilities (e.g. excessive depreciation); not shown in the balance sheet.

Question LA – Q6

What are ‘provisions’. How are they created? Give accounting treatment in case of provision for doubtful Debts.

Answer

Provisions are amounts charged against profit to provide for a known liability or expected loss whose amount cannot be determined accurately — e.g. depreciation, doubtful debts, taxation, repairs.

Creation: by debiting the Profit and Loss Account and crediting the Provision Account. The provision is shown in the balance sheet either as a deduction from the related asset or as a liability.

Provision for doubtful debts

Write off actual bad debts: Bad Debts A/c Dr. To Debtors A/c.
Transfer bad debts to the provision: Provision for Doubtful Debts A/c Dr. To Bad Debts A/c.
Create/adjust the provision to the required level (say % of debtors): if the new provision plus bad debts exceeds the old provision, P&L A/c Dr. To Provision for Doubtful Debts A/c with the excess; if less, Provision A/c Dr. To P&L A/c.
In the balance sheet, debtors are shown less the new provision.

Questions for Practice – Numerical Questions

Question Num – Q1

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.

Answer

Cost = 1,80,000 + 10,000 + 10,000 = ₹ 2,00,000. Annual depreciation = (2,00,000 – 20,000) ÷ 10 = ₹ 18,000.

(a) Depreciation charged to Machine Account

Year ended Mar 31, 2011

Machine Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2010	To Bank	2,00,000	Mar 31, 2011	By Depreciation	18,000
			Mar 31, 2011	By Balance c/d	1,82,000
		2,00,000			2,00,000
Apr 1, 2011	To Balance b/d	1,82,000

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2011	To Machine	18,000	Mar 31, 2011	By Profit and Loss	18,000
		18,000			18,000

Year ended Mar 31, 2012

Machine Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2011	To Balance b/d	1,82,000	Mar 31, 2012	By Depreciation	18,000
			Mar 31, 2012	By Balance c/d	1,64,000
		1,82,000			1,82,000
Apr 1, 2012	To Balance b/d	1,64,000

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2012	To Machine	18,000	Mar 31, 2012	By Profit and Loss	18,000
		18,000			18,000

Year ended Mar 31, 2013

Machine Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2012	To Balance b/d	1,64,000	Mar 31, 2013	By Depreciation	18,000
			Mar 31, 2013	By Balance c/d	1,46,000
		1,64,000			1,64,000
Apr 1, 2013	To Balance b/d	1,46,000

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2013	To Machine	18,000	Mar 31, 2013	By Profit and Loss	18,000
		18,000			18,000

Year ended Mar 31, 2014

Machine Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2013	To Balance b/d	1,46,000	Mar 31, 2014	By Depreciation	18,000
			Mar 31, 2014	By Balance c/d	1,28,000
		1,46,000			1,46,000
Apr 1, 2014	To Balance b/d	1,28,000

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2014	To Machine	18,000	Mar 31, 2014	By Profit and Loss	18,000
		18,000			18,000

(b) Provision for Depreciation Account maintained

Year ended Mar 31, 2011

Machine Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2010	To Bank	2,00,000	Mar 31, 2011	By Balance c/d	2,00,000
		2,00,000			2,00,000
Apr 1, 2011	To Balance b/d	2,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2011	To Balance c/d	18,000	Mar 31, 2011	By Depreciation	18,000
		18,000			18,000
			Apr 1, 2011	By Balance b/d	18,000

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2011	To Provision for Depreciation	18,000	Mar 31, 2011	By Profit and Loss	18,000
		18,000			18,000

Year ended Mar 31, 2012

Machine Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2011	To Balance b/d	2,00,000	Mar 31, 2012	By Balance c/d	2,00,000
		2,00,000			2,00,000
Apr 1, 2012	To Balance b/d	2,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2012	To Balance c/d	36,000	Apr 1, 2011	By Balance b/d	18,000
			Mar 31, 2012	By Depreciation	18,000
		36,000			36,000
			Apr 1, 2012	By Balance b/d	36,000

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2012	To Provision for Depreciation	18,000	Mar 31, 2012	By Profit and Loss	18,000
		18,000			18,000

Year ended Mar 31, 2013

Machine Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2012	To Balance b/d	2,00,000	Mar 31, 2013	By Balance c/d	2,00,000
		2,00,000			2,00,000
Apr 1, 2013	To Balance b/d	2,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2013	To Balance c/d	54,000	Apr 1, 2012	By Balance b/d	36,000
			Mar 31, 2013	By Depreciation	18,000
		54,000			54,000
			Apr 1, 2013	By Balance b/d	54,000

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2013	To Provision for Depreciation	18,000	Mar 31, 2013	By Profit and Loss	18,000
		18,000			18,000

Year ended Mar 31, 2014

Machine Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2013	To Balance b/d	2,00,000	Mar 31, 2014	By Balance c/d	2,00,000
		2,00,000			2,00,000
Apr 1, 2014	To Balance b/d	2,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2014	To Balance c/d	72,000	Apr 1, 2013	By Balance b/d	54,000
			Mar 31, 2014	By Depreciation	18,000
		72,000			72,000
			Apr 1, 2014	By Balance b/d	72,000

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2014	To Provision for Depreciation	18,000	Mar 31, 2014	By Profit and Loss	18,000
		18,000			18,000

Book value on Mar 31, 2014: ₹ 1,28,000; Machine at cost ₹ 2,00,000; Provision for depreciation ₹ 72,000 on Mar 31, 2014

Question Num – Q2

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.

Answer

Cost = ₹ 1,20,000. Annual depreciation = (1,20,000 – 12,000) ÷ 12 = ₹ 9,000; 2010 has 6 months (₹ 4,500).

Year ended Dec 31, 2010

Machine Account

Date	Particulars	₹	Date	Particulars	₹
Jul 1, 2010	To Bank	1,20,000	Dec 31, 2010	By Depreciation	4,500
			Dec 31, 2010	By Balance c/d	1,15,500
		1,20,000			1,20,000
Jan 1, 2011	To Balance b/d	1,15,500

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2010	To Machine	4,500	Dec 31, 2010	By Profit and Loss	4,500
		4,500			4,500

Year ended Dec 31, 2011

Machine Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2011	To Balance b/d	1,15,500	Dec 31, 2011	By Depreciation	9,000
			Dec 31, 2011	By Balance c/d	1,06,500
		1,15,500			1,15,500
Jan 1, 2012	To Balance b/d	1,06,500

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2011	To Machine	9,000	Dec 31, 2011	By Profit and Loss	9,000
		9,000			9,000

Year ended Dec 31, 2012

Machine Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2012	To Balance b/d	1,06,500	Dec 31, 2012	By Depreciation	9,000
			Dec 31, 2012	By Balance c/d	97,500
		1,06,500			1,06,500
Jan 1, 2013	To Balance b/d	97,500

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2012	To Machine	9,000	Dec 31, 2012	By Profit and Loss	9,000
		9,000			9,000

Book value on Dec 31, 2012: ₹ 97,500

Question Num – Q3

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 installment Method. Accounts are closed on March 31, every year.

Answer

Cost = 56,000 + 28,000 = ₹ 84,000. Net residual value = 6,000 – 1,000 = ₹ 5,000. Annual depreciation = 79,000 ÷ 15 = ₹ 5,266.67; the first year (Oct–Mar) has 6 months.

Year ended Mar 31, 2012

Machine Account

Date	Particulars	₹	Date	Particulars	₹
Oct 1, 2011	To Bank	84,000	Mar 31, 2012	By Balance c/d	84,000
		84,000			84,000
Apr 1, 2012	To Balance b/d	84,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2012	To Balance c/d	2,633.33	Mar 31, 2012	By Depreciation	2,633.33
		2,633.33			2,633.33
			Apr 1, 2012	By Balance b/d	2,633.33

Year ended Mar 31, 2013

Machine Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2012	To Balance b/d	84,000	Mar 31, 2013	By Balance c/d	84,000
		84,000			84,000
Apr 1, 2013	To Balance b/d	84,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2013	To Balance c/d	7,900	Apr 1, 2012	By Balance b/d	2,633.33
			Mar 31, 2013	By Depreciation	5,266.67
		7,900			7,900
			Apr 1, 2013	By Balance b/d	7,900

Year ended Mar 31, 2014

Machine Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2013	To Balance b/d	84,000	Mar 31, 2014	By Balance c/d	84,000
		84,000			84,000
Apr 1, 2014	To Balance b/d	84,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2014	To Balance c/d	13,166.67	Apr 1, 2013	By Balance b/d	7,900
			Mar 31, 2014	By Depreciation	5,266.67
		13,166.67			13,166.67
			Apr 1, 2014	By Balance b/d	13,166.67

Machine at cost ₹ 84,000; Provision for depreciation ₹ 13,166.67 on Mar 31, 2014

Note: The textbook answer (₹ 18,200 on 31.03.2015) uses a residual value of ₹ 6,000 (₹ 5,200 a year) and runs to a fourth year-end; with the net residual value of ₹ 5,000 required by AS-10, the provision after three accounting years is as shown.

Question Num – Q4

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.

Answer

Cost of Machine I = 56,000 + 24,000 + 5,000 = ₹ 85,000; Machine II = ₹ 2,60,000.

(a) Original cost (straight line) method

Year ended Dec 31, 2015

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jul 1, 2015	To Bank	85,000	Dec 31, 2015	By Depreciation	4,250
			Dec 31, 2015	By Balance c/d	80,750
		85,000			85,000
Jan 1, 2016	To Balance b/d	80,750

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2015	To Machinery	4,250	Dec 31, 2015	By Profit and Loss	4,250
		4,250			4,250

Year ended Dec 31, 2016

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2016	To Balance b/d	80,750	Dec 31, 2016	By Depreciation	17,166.67
Sep 1, 2016	To Bank	2,60,000	Dec 31, 2016	By Balance c/d	3,23,583.33
		3,40,750			3,40,750
Jan 1, 2017	To Balance b/d	3,23,583.33

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2016	To Machinery	17,166.67	Dec 31, 2016	By Profit and Loss	17,166.67
		17,166.67			17,166.67

Year ended Dec 31, 2017

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2017	To Balance b/d	3,23,583.33	Dec 31, 2017	By Depreciation	34,500
			Dec 31, 2017	By Balance c/d	2,89,083.33
		3,23,583.33			3,23,583.33
Jan 1, 2018	To Balance b/d	2,89,083.33

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2017	To Machinery	34,500	Dec 31, 2017	By Profit and Loss	34,500
		34,500			34,500

Year ended Dec 31, 2018

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2018	To Balance b/d	2,89,083.33	Dec 31, 2018	By Depreciation	34,500
			Dec 31, 2018	By Balance c/d	2,54,583.33
		2,89,083.33			2,89,083.33
Jan 1, 2019	To Balance b/d	2,54,583.33

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2018	To Machinery	34,500	Dec 31, 2018	By Profit and Loss	34,500
		34,500			34,500

Book value on Dec 31, 2018: ₹ 2,54,583.33

Part (b) — written down value method

(b) Written down value method

Year ended Dec 31, 2015

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jul 1, 2015	To Bank	85,000	Dec 31, 2015	By Depreciation	4,250
			Dec 31, 2015	By Balance c/d	80,750
		85,000			85,000
Jan 1, 2016	To Balance b/d	80,750

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2015	To Machinery	4,250	Dec 31, 2015	By Profit and Loss	4,250
		4,250			4,250

Year ended Dec 31, 2016

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2016	To Balance b/d	80,750	Dec 31, 2016	By Depreciation	16,741.67
Sep 1, 2016	To Bank	2,60,000	Dec 31, 2016	By Balance c/d	3,24,008.33
		3,40,750			3,40,750
Jan 1, 2017	To Balance b/d	3,24,008.33

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2016	To Machinery	16,741.67	Dec 31, 2016	By Profit and Loss	16,741.67
		16,741.67			16,741.67

Year ended Dec 31, 2017

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2017	To Balance b/d	3,24,008.33	Dec 31, 2017	By Depreciation	32,400.83
			Dec 31, 2017	By Balance c/d	2,91,607.50
		3,24,008.33			3,24,008.33
Jan 1, 2018	To Balance b/d	2,91,607.50

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2017	To Machinery	32,400.83	Dec 31, 2017	By Profit and Loss	32,400.83
		32,400.83			32,400.83

Year ended Dec 31, 2018

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2018	To Balance b/d	2,91,607.50	Dec 31, 2018	By Depreciation	29,160.75
			Dec 31, 2018	By Balance c/d	2,62,446.75
		2,91,607.50			2,91,607.50
Jan 1, 2019	To Balance b/d	2,62,446.75

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2018	To Machinery	29,160.75	Dec 31, 2018	By Profit and Loss	29,160.75
		29,160.75			29,160.75

Book value on Dec 31, 2018: ₹ 2,62,446.75

The textbook prints “from 2011 to 2018” in (b); the machines were bought in 2015 and 2016, so 2015–2018 is shown. The total ₹ 2,62,446.75 agrees with the textbook’s ₹ 2,62,448 except for rounding.

Question Num – Q5

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, 2015 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.

Answer

Machine I cost = ₹ 6,00,000.

(a) Depreciation charged to Machinery Account

Year ended Dec 31, 2014

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2014	To Bank	6,00,000	Dec 31, 2014	By Depreciation	72,333.33
Sep 1, 2014	To Bank	3,70,000	Dec 31, 2014	By Balance c/d	8,97,666.67
		9,70,000			9,70,000
Jan 1, 2015	To Balance b/d	8,97,666.67

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2014	To Machinery	72,333.33	Dec 31, 2014	By Profit and Loss	72,333.33
		72,333.33			72,333.33

Year ended Dec 31, 2015

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2015	To Balance b/d	8,97,666.67	Dec 31, 2015	By Depreciation	1,53,000
May 1, 2015	To Bank	8,40,000	Dec 31, 2015	By Balance c/d	15,84,666.67
		17,37,666.67			17,37,666.67
Jan 1, 2016	To Balance b/d	15,84,666.67

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2015	To Machinery	1,53,000	Dec 31, 2015	By Profit and Loss	1,53,000
		1,53,000			1,53,000

Year ended Dec 31, 2016

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2016	To Balance b/d	15,84,666.67	Dec 31, 2016	By Depreciation	1,81,000
			Dec 31, 2016	By Balance c/d	14,03,666.67
		15,84,666.67			15,84,666.67
Jan 1, 2017	To Balance b/d	14,03,666.67

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2016	To Machinery	1,81,000	Dec 31, 2016	By Profit and Loss	1,81,000
		1,81,000			1,81,000

Year ended Dec 31, 2017

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2017	To Balance b/d	14,03,666.67	Dec 31, 2017	By Depreciation	1,81,000
			Dec 31, 2017	By Balance c/d	12,22,666.67
		14,03,666.67			14,03,666.67
Jan 1, 2018	To Balance b/d	12,22,666.67

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2017	To Machinery	1,81,000	Dec 31, 2017	By Profit and Loss	1,81,000
		1,81,000			1,81,000

(b) Provision for Depreciation Account maintained

Year ended Dec 31, 2014

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2014	To Bank	6,00,000	Dec 31, 2014	By Balance c/d	9,70,000
Sep 1, 2014	To Bank	3,70,000
		9,70,000			9,70,000
Jan 1, 2015	To Balance b/d	9,70,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2014	To Balance c/d	72,333.33	Dec 31, 2014	By Depreciation	72,333.33
		72,333.33			72,333.33
			Jan 1, 2015	By Balance b/d	72,333.33

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2014	To Provision for Depreciation	72,333.33	Dec 31, 2014	By Profit and Loss	72,333.33
		72,333.33			72,333.33

Year ended Dec 31, 2015

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2015	To Balance b/d	9,70,000	Dec 31, 2015	By Balance c/d	18,10,000
May 1, 2015	To Bank	8,40,000
		18,10,000			18,10,000
Jan 1, 2016	To Balance b/d	18,10,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2015	To Balance c/d	2,25,333.33	Jan 1, 2015	By Balance b/d	72,333.33
			Dec 31, 2015	By Depreciation	1,53,000
		2,25,333.33			2,25,333.33
			Jan 1, 2016	By Balance b/d	2,25,333.33

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2015	To Provision for Depreciation	1,53,000	Dec 31, 2015	By Profit and Loss	1,53,000
		1,53,000			1,53,000

Year ended Dec 31, 2016

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2016	To Balance b/d	18,10,000	Dec 31, 2016	By Balance c/d	18,10,000
		18,10,000			18,10,000
Jan 1, 2017	To Balance b/d	18,10,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2016	To Balance c/d	4,06,333.33	Jan 1, 2016	By Balance b/d	2,25,333.33
			Dec 31, 2016	By Depreciation	1,81,000
		4,06,333.33			4,06,333.33
			Jan 1, 2017	By Balance b/d	4,06,333.33

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2016	To Provision for Depreciation	1,81,000	Dec 31, 2016	By Profit and Loss	1,81,000
		1,81,000			1,81,000

Year ended Dec 31, 2017

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2017	To Balance b/d	18,10,000	Dec 31, 2017	By Balance c/d	18,10,000
		18,10,000			18,10,000
Jan 1, 2018	To Balance b/d	18,10,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2017	To Balance c/d	5,87,333.33	Jan 1, 2017	By Balance b/d	4,06,333.33
			Dec 31, 2017	By Depreciation	1,81,000
		5,87,333.33			5,87,333.33
			Jan 1, 2018	By Balance b/d	5,87,333.33

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2017	To Provision for Depreciation	1,81,000	Dec 31, 2017	By Profit and Loss	1,81,000
		1,81,000			1,81,000

Book value on Dec 31, 2017: ₹ 12,22,666.67; Machinery at cost ₹ 18,10,000; Provision for depreciation ₹ 5,87,333.33 on Dec 31, 2017

The textbook’s answer figures (₹ 12,22,667 and ₹ 5,87,333) are the balances on 01.01.2018 (printed as 01.01.15).

Question Num – Q6

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.

Answer

(i) Without disposal account

Year ended Mar 31, 2015

Furniture Account

Date	Particulars	₹	Date	Particulars	₹
Oct 1, 2014	To Bank	4,50,000	Mar 31, 2015	By Balance c/d	7,50,000
Mar 1, 2015	To Bank	3,00,000
		7,50,000			7,50,000
Apr 1, 2015	To Balance b/d	7,50,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2015	To Balance c/d	37,500	Mar 31, 2015	By Depreciation	37,500
		37,500			37,500
			Apr 1, 2015	By Balance b/d	37,500

Year ended Mar 31, 2016

Furniture Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2015	To Balance b/d	7,50,000	Mar 31, 2016	By Balance c/d	7,50,000
		7,50,000			7,50,000
Apr 1, 2016	To Balance b/d	7,50,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2016	To Balance c/d	1,44,375	Apr 1, 2015	By Balance b/d	37,500
			Mar 31, 2016	By Depreciation	1,06,875
		1,44,375			1,44,375
			Apr 1, 2016	By Balance b/d	1,44,375

Year ended Mar 31, 2017

Furniture Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2016	To Balance b/d	7,50,000	Jul 1, 2016	By Provision for Depreciation	1,09,455.47
			Jul 1, 2016	By Bank	2,25,000
			Jul 1, 2016	By Profit and Loss (loss on sale)	1,15,544.53
			Mar 31, 2017	By Balance c/d	3,00,000
		7,50,000			7,50,000
Apr 1, 2017	To Balance b/d	3,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Jul 1, 2016	To Furniture	1,09,455.47	Apr 1, 2016	By Balance b/d	1,44,375
Mar 31, 2017	To Balance c/d	85,959.38	Jul 1, 2016	By Depreciation	13,267.97
			Mar 31, 2017	By Depreciation	37,771.88
		1,95,414.85			1,95,414.85
			Apr 1, 2017	By Balance b/d	85,959.38

(ii) With Furniture Disposal Account

Year ended Mar 31, 2015

Furniture Account

Date	Particulars	₹	Date	Particulars	₹
Oct 1, 2014	To Bank	4,50,000	Mar 31, 2015	By Balance c/d	7,50,000
Mar 1, 2015	To Bank	3,00,000
		7,50,000			7,50,000
Apr 1, 2015	To Balance b/d	7,50,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2015	To Balance c/d	37,500	Mar 31, 2015	By Depreciation	37,500
		37,500			37,500
			Apr 1, 2015	By Balance b/d	37,500

Year ended Mar 31, 2016

Furniture Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2015	To Balance b/d	7,50,000	Mar 31, 2016	By Balance c/d	7,50,000
		7,50,000			7,50,000
Apr 1, 2016	To Balance b/d	7,50,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2016	To Balance c/d	1,44,375	Apr 1, 2015	By Balance b/d	37,500
			Mar 31, 2016	By Depreciation	1,06,875
		1,44,375			1,44,375
			Apr 1, 2016	By Balance b/d	1,44,375

Year ended Mar 31, 2017

Furniture Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2016	To Balance b/d	7,50,000	Jul 1, 2016	By Furniture Disposal	4,50,000
			Mar 31, 2017	By Balance c/d	3,00,000
		7,50,000			7,50,000
Apr 1, 2017	To Balance b/d	3,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Jul 1, 2016	To Furniture Disposal	1,09,455.47	Apr 1, 2016	By Balance b/d	1,44,375
Mar 31, 2017	To Balance c/d	85,959.38	Jul 1, 2016	By Depreciation	13,267.97
			Mar 31, 2017	By Depreciation	37,771.88
		1,95,414.85			1,95,414.85
			Apr 1, 2017	By Balance b/d	85,959.38

Furniture Disposal Account

Date	Particulars	₹	Date	Particulars	₹
Jul 1, 2016	To Furniture	4,50,000	Jul 1, 2016	By Provision for Depreciation	1,09,455.47
			Jul 1, 2016	By Bank	2,25,000
			Jul 1, 2016	By Profit and Loss (loss)	1,15,544.53
		4,50,000			4,50,000

Loss on first furniture: ₹ 1,15,544.53; Furniture at cost ₹ 3,00,000; Provision for depreciation ₹ 85,959.38 on Mar 31, 2017

The loss ₹ 1,15,544.53 agrees with the textbook (₹ 1,15,546) except for rounding; its ₹ 85,959 is the provision on 31.03.2017.

Question Num – Q7

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.

Answer

Book values on April 1, 2015 (depreciation charged to the asset account):

Machine	Cost	Depreciation to 31.3.2015	Book value
I (Apr 2011)	1,00,000	15,000 × 4 = 60,000	40,000
II (Jul 2012)	2,50,000	28,125 + 37,500 + 37,500 = 1,03,125	1,46,875

Year ended Mar 31, 2016

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2015	To Balance b/d	1,86,875	Oct 1, 2015	By Machinery Disposal	40,000
			Mar 31, 2016	By Depreciation	37,500
			Mar 31, 2016	By Balance c/d	1,09,375
		1,86,875			1,86,875
Apr 1, 2016	To Balance b/d	1,09,375

Machinery Disposal Account

Date	Particulars	₹	Date	Particulars	₹
Oct 1, 2015	To Machinery	40,000	Oct 1, 2015	By Depreciation	7,500
			Oct 1, 2015	By Bank	25,000
			Oct 1, 2015	By Profit and Loss (loss)	7,500
		40,000			40,000

Loss on first machine: ₹ 7,500; Book value on Mar 31, 2016: ₹ 1,09,375

The textbook’s ₹ 1,09,375 is the book value of the second machine on 31.03.2016.

Question Num – Q8

The following balances appear in the books of Crystal Ltd, on Jan 01, 2015: Machinery account ₹ 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.

Answer

Accumulated depreciation on the machine sold to 31.12.2014 = 2,00,000 × 20% × 3 = ₹ 1,20,000; on the remaining machinery = 5,50,000 – 1,20,000 = ₹ 4,30,000.

Year ended Dec 31, 2015

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2015	To Balance b/d	15,00,000	Apr 1, 2015	By Provision for Depreciation	1,30,000
Jul 1, 2015	To Bank	6,00,000	Apr 1, 2015	By Bank	75,000
Apr 1, 2015	To Profit and Loss (profit on sale)	5,000	Dec 31, 2015	By Balance c/d	19,00,000
		21,05,000			21,05,000
Jan 1, 2016	To Balance b/d	19,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2015	To Machinery	1,30,000	Jan 1, 2015	By Balance b/d	5,50,000
Dec 31, 2015	To Balance c/d	7,50,000	Apr 1, 2015	By Depreciation	10,000
			Dec 31, 2015	By Depreciation	3,20,000
		8,80,000			8,80,000
			Jan 1, 2016	By Balance b/d	7,50,000

Profit on machine sold: ₹ 5,000; Machinery at cost ₹ 19,00,000; Provision for depreciation ₹ 7,50,000 on Dec 31, 2015

Note: The textbook’s provision of ₹ 4,90,000 leaves out the year’s depreciation on the remaining old machinery (₹ 2,60,000); including it the provision is ₹ 7,50,000.

Question Num – Q9

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.

Answer

Depreciation on the old computer is ₹ 12,000 a year (10% of ₹ 1,20,000); in 2014-15 only its remaining book value of ₹ 2,000 is written off.

Year ended Mar 31, 2011

Computers Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2010	To Balance b/d	50,000	Mar 31, 2011	By Depreciation	31,500
Jul 1, 2010	To Bank	2,50,000	Mar 31, 2011	By Balance c/d	2,98,500
Jan 1, 2011	To Bank	30,000
		3,30,000			3,30,000
Apr 1, 2011	To Balance b/d	2,98,500

Year ended Mar 31, 2012

Computers Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2011	To Balance b/d	2,98,500	Mar 31, 2012	By Depreciation	40,000
			Mar 31, 2012	By Balance c/d	2,58,500
		2,98,500			2,98,500
Apr 1, 2012	To Balance b/d	2,58,500

Year ended Mar 31, 2013

Computers Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2012	To Balance b/d	2,58,500	Mar 31, 2013	By Depreciation	40,000
			Mar 31, 2013	By Balance c/d	2,18,500
		2,58,500			2,58,500
Apr 1, 2013	To Balance b/d	2,18,500

Year ended Mar 31, 2014

Computers Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2013	To Balance b/d	2,18,500	Mar 31, 2014	By Depreciation	40,000
			Mar 31, 2014	By Balance c/d	1,78,500
		2,18,500			2,18,500
Apr 1, 2014	To Balance b/d	1,78,500

Year ended Mar 31, 2015

Computers Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2014	To Balance b/d	1,78,500	Apr 1, 2014	By Bank	20,000
Aug 1, 2014	To Bank	80,000	Apr 1, 2014	By Profit and Loss (loss on sale)	1,36,250
			Mar 31, 2015	By Depreciation	10,333.33
			Mar 31, 2015	By Balance c/d	91,916.67
		2,58,500			2,58,500
Apr 1, 2015	To Balance b/d	91,916.67

Loss on computer of July 2010: ₹ 1,36,250; Book value on Mar 31, 2015: ₹ 91,916.67

Note: The loss of ₹ 1,36,250 agrees with the textbook. Its closing balance of ₹ 83,917 is ₹ 8,000 less than the figure obtained here; the difference arises from the treatment of the fully depreciated old computer.

Question Num – Q10

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.

Answer

The five trucks bought on April 1, 2011 are shown as one purchase of ₹ 10,00,000 in the accounts (split here into the destroyed truck and the other four). The second-hand truck costs 1,00,000 + 20,000 = ₹ 1,20,000.

(i) Without disposal account

Year ended Dec 31, 2011

Trucks Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2011	To Bank	2,00,000	Dec 31, 2011	By Balance c/d	10,00,000
Apr 1, 2011	To Bank	8,00,000
		10,00,000			10,00,000
Jan 1, 2012	To Balance b/d	10,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2011	To Balance c/d	1,50,000	Dec 31, 2011	By Depreciation	1,50,000
		1,50,000			1,50,000
			Jan 1, 2012	By Balance b/d	1,50,000

Year ended Dec 31, 2012

Trucks Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2012	To Balance b/d	10,00,000	Dec 31, 2012	By Balance c/d	10,00,000
		10,00,000			10,00,000
Jan 1, 2013	To Balance b/d	10,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2012	To Balance c/d	3,50,000	Jan 1, 2012	By Balance b/d	1,50,000
			Dec 31, 2012	By Depreciation	2,00,000
		3,50,000			3,50,000
			Jan 1, 2013	By Balance b/d	3,50,000

Year ended Dec 31, 2013

Trucks Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2013	To Balance b/d	10,00,000	Oct 1, 2013	By Provision for Depreciation	1,00,000
Oct 1, 2013	To Bank	1,20,000	Oct 1, 2013	By Insurance Company	70,000
			Oct 1, 2013	By Profit and Loss (loss on sale)	30,000
			Dec 31, 2013	By Balance c/d	9,20,000
		11,20,000			11,20,000
Jan 1, 2014	To Balance b/d	9,20,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Oct 1, 2013	To Trucks	1,00,000	Jan 1, 2013	By Balance b/d	3,50,000
Dec 31, 2013	To Balance c/d	4,46,000	Oct 1, 2013	By Depreciation	30,000
			Dec 31, 2013	By Depreciation	1,66,000
		5,46,000			5,46,000
			Jan 1, 2014	By Balance b/d	4,46,000

(ii) With Truck Disposal Account

Year ended Dec 31, 2011

Trucks Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2011	To Bank	2,00,000	Dec 31, 2011	By Balance c/d	10,00,000
Apr 1, 2011	To Bank	8,00,000
		10,00,000			10,00,000
Jan 1, 2012	To Balance b/d	10,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2011	To Balance c/d	1,50,000	Dec 31, 2011	By Depreciation	1,50,000
		1,50,000			1,50,000
			Jan 1, 2012	By Balance b/d	1,50,000

Year ended Dec 31, 2012

Trucks Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2012	To Balance b/d	10,00,000	Dec 31, 2012	By Balance c/d	10,00,000
		10,00,000			10,00,000
Jan 1, 2013	To Balance b/d	10,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2012	To Balance c/d	3,50,000	Jan 1, 2012	By Balance b/d	1,50,000
			Dec 31, 2012	By Depreciation	2,00,000
		3,50,000			3,50,000
			Jan 1, 2013	By Balance b/d	3,50,000

Year ended Dec 31, 2013

Trucks Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2013	To Balance b/d	10,00,000	Oct 1, 2013	By Trucks Disposal	2,00,000
Oct 1, 2013	To Bank	1,20,000	Dec 31, 2013	By Balance c/d	9,20,000
		11,20,000			11,20,000
Jan 1, 2014	To Balance b/d	9,20,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Oct 1, 2013	To Trucks Disposal	1,00,000	Jan 1, 2013	By Balance b/d	3,50,000
Dec 31, 2013	To Balance c/d	4,46,000	Oct 1, 2013	By Depreciation	30,000
			Dec 31, 2013	By Depreciation	1,66,000
		5,46,000			5,46,000
			Jan 1, 2014	By Balance b/d	4,46,000

Trucks Disposal Account

Date	Particulars	₹	Date	Particulars	₹
Oct 1, 2013	To Trucks	2,00,000	Oct 1, 2013	By Provision for Depreciation	1,00,000
			Oct 1, 2013	By Insurance Company	70,000
			Oct 1, 2013	By Profit and Loss (loss)	30,000
		2,00,000			2,00,000

Loss on destroyed truck: ₹ 30,000; Trucks at cost ₹ 9,20,000; Provision for depreciation ₹ 4,46,000 on Dec 31, 2013

Question Num – Q11

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 April 30, 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.

Answer

The 2011 machinery of ₹ 10,00,000 is split into the part sold (₹ 2,00,000) and the rest (₹ 8,00,000).

Year ended Dec 31, 2011

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2011	To Bank	2,00,000	Dec 31, 2011	By Balance c/d	10,00,000
Jan 1, 2011	To Bank	8,00,000
		10,00,000			10,00,000
Jan 1, 2012	To Balance b/d	10,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2011	To Balance c/d	1,00,000	Dec 31, 2011	By Depreciation	1,00,000
		1,00,000			1,00,000
			Jan 1, 2012	By Balance b/d	1,00,000

Year ended Dec 31, 2012

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2012	To Balance b/d	10,00,000	Dec 31, 2012	By Balance c/d	25,00,000
May 1, 2012	To Bank	15,00,000
		25,00,000			25,00,000
Jan 1, 2013	To Balance b/d	25,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2012	To Balance c/d	3,00,000	Jan 1, 2012	By Balance b/d	1,00,000
			Dec 31, 2012	By Depreciation	2,00,000
		3,00,000			3,00,000
			Jan 1, 2013	By Balance b/d	3,00,000

Year ended Dec 31, 2013

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2013	To Balance b/d	25,00,000	Dec 31, 2013	By Balance c/d	25,00,000
		25,00,000			25,00,000
Jan 1, 2014	To Balance b/d	25,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2013	To Balance c/d	5,50,000	Jan 1, 2013	By Balance b/d	3,00,000
			Dec 31, 2013	By Depreciation	2,50,000
		5,50,000			5,50,000
			Jan 1, 2014	By Balance b/d	5,50,000

Year ended Dec 31, 2014

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2014	To Balance b/d	25,00,000	Apr 30, 2014	By Machinery Disposal	2,00,000
Jul 1, 2014	To Bank	12,00,000	Dec 31, 2014	By Balance c/d	35,00,000
		37,00,000			37,00,000
Jan 1, 2015	To Balance b/d	35,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Apr 30, 2014	To Machinery Disposal	66,666.67	Jan 1, 2014	By Balance b/d	5,50,000
Dec 31, 2014	To Balance c/d	7,80,000	Apr 30, 2014	By Depreciation	6,666.67
			Dec 31, 2014	By Depreciation	2,90,000
		8,46,666.67			8,46,666.67
			Jan 1, 2015	By Balance b/d	7,80,000

Machinery Disposal Account

Date	Particulars	₹	Date	Particulars	₹
Apr 30, 2014	To Machinery	2,00,000	Apr 30, 2014	By Provision for Depreciation	66,666.67
			Apr 30, 2014	By Bank	75,000
			Apr 30, 2014	By Profit and Loss (loss)	58,333.33
		2,00,000			2,00,000

Year ended Dec 31, 2015

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2015	To Balance b/d	35,00,000	Dec 31, 2015	By Balance c/d	35,00,000
		35,00,000			35,00,000
Jan 1, 2016	To Balance b/d	35,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2015	To Balance c/d	11,30,000	Jan 1, 2015	By Balance b/d	7,80,000
			Dec 31, 2015	By Depreciation	3,50,000
		11,30,000			11,30,000
			Jan 1, 2016	By Balance b/d	11,30,000

Loss on part of 2011 machinery: ₹ 58,333.33; Machinery at cost ₹ 35,00,000; Provision for depreciation ₹ 11,30,000 on Dec 31, 2015

Question Num – Q12

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.

Answer

Cost = 2,00,000 + 25,000 = ₹ 2,25,000. Annual depreciation = (2,25,000 – 20,000) ÷ 5 = ₹ 41,000; 2011 (6 months) = ₹ 20,500. Accounts are taken as closed on December 31.

Journal (2011)

Date	Particulars	Dr. (₹)	Cr. (₹)
2011 Jul 1	Machinery A/c …Dr.	2,25,000
	To Supplier (creditor) A/c		2,00,000
	To Bank A/c		25,000
	(Machine bought on credit; installation paid by cheque)
Dec 31	Depreciation A/c …Dr.	20,500
	To Machinery A/c		20,500
	(Depreciation for 6 months)
Dec 31	Profit and Loss A/c …Dr.	20,500
	To Depreciation A/c		20,500
	(Depreciation transferred)
	Total	2,66,000	2,66,000

Year ended Dec 31, 2011

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jul 1, 2011	To Sundries (Supplier 2,00,000 + Bank 25,000)	2,25,000	Dec 31, 2011	By Depreciation	20,500
			Dec 31, 2011	By Balance c/d	2,04,500
		2,25,000			2,25,000
Jan 1, 2012	To Balance b/d	2,04,500

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2011	To Machinery	20,500	Dec 31, 2011	By Profit and Loss	20,500
		20,500			20,500

Year ended Dec 31, 2012

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2012	To Balance b/d	2,04,500	Dec 31, 2012	By Depreciation	41,000
			Dec 31, 2012	By Balance c/d	1,63,500
		2,04,500			2,04,500
Jan 1, 2013	To Balance b/d	1,63,500

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2012	To Machinery	41,000	Dec 31, 2012	By Profit and Loss	41,000
		41,000			41,000

Year ended Dec 31, 2013

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2013	To Balance b/d	1,63,500	Dec 31, 2013	By Depreciation	41,000
			Dec 31, 2013	By Balance c/d	1,22,500
		1,63,500			1,63,500
Jan 1, 2014	To Balance b/d	1,22,500

Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2013	To Machinery	41,000	Dec 31, 2013	By Profit and Loss	41,000
		41,000			41,000

Book value of machine on Dec 31, 2013: ₹ 1,22,500

Question Num – Q13

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.

Answer

Year ended Mar 31, 2011

Truck Account

Date	Particulars	₹	Date	Particulars	₹
Oct 1, 2010	To Bank	8,00,000	Mar 31, 2011	By Depreciation	60,000
			Mar 31, 2011	By Balance c/d	7,40,000
		8,00,000			8,00,000
Apr 1, 2011	To Balance b/d	7,40,000

Year ended Mar 31, 2012

Truck Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2011	To Balance b/d	7,40,000	Mar 31, 2012	By Depreciation	1,11,000
			Mar 31, 2012	By Balance c/d	6,29,000
		7,40,000			7,40,000
Apr 1, 2012	To Balance b/d	6,29,000

Year ended Mar 31, 2013

Truck Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2012	To Balance b/d	6,29,000	Mar 31, 2013	By Depreciation	94,350
			Mar 31, 2013	By Balance c/d	5,34,650
		6,29,000			6,29,000
Apr 1, 2013	To Balance b/d	5,34,650

Year ended Mar 31, 2014

Truck Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2013	To Balance b/d	5,34,650	Dec 31, 2013	By Depreciation	60,148.13
Dec 31, 2013	To Profit and Loss (profit on sale)	25,498.13	Dec 31, 2013	By Bank	5,00,000
		5,60,148.13			5,60,148.13

Profit on truck: ₹ 25,498.13; Book value on Mar 31, 2014: ₹ 0

Note: With 6 months’ depreciation in 2010-11 and 9 months’ in 2013-14, the profit is ₹ 25,498.13. The textbook’s ₹ 58,237 cannot be obtained from the data given.

Question Num – Q14

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.

Answer

Year ended Dec 31, 2011

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jul 1, 2011	To Bank	3,50,000	Dec 31, 2011	By Depreciation	17,500
			Dec 31, 2011	By Balance c/d	3,32,500
		3,50,000			3,50,000
Jan 1, 2012	To Balance b/d	3,32,500

Year ended Dec 31, 2012

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2012	To Balance b/d	3,32,500	Dec 31, 2012	By Depreciation	48,750
Apr 1, 2012	To Bank	1,50,000	Dec 31, 2012	By Balance c/d	5,33,750
Oct 1, 2012	To Bank	1,00,000
		5,82,500			5,82,500
Jan 1, 2013	To Balance b/d	5,33,750

Year ended Dec 31, 2013

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2013	To Balance b/d	5,33,750	Jan 1, 2013	By Bank	1,00,000
			Jan 1, 2013	By Profit and Loss (loss on sale)	1,97,500
			Dec 31, 2013	By Depreciation	25,000
			Dec 31, 2013	By Balance c/d	2,11,250
		5,33,750			5,33,750
Jan 1, 2014	To Balance b/d	2,11,250

Year ended Dec 31, 2014

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2014	To Balance b/d	2,11,250	Dec 31, 2014	By Depreciation	25,000
			Dec 31, 2014	By Balance c/d	1,86,250
		2,11,250			2,11,250
Jan 1, 2015	To Balance b/d	1,86,250

Loss on first machine: ₹ 1,97,500; Book value on Dec 31, 2014: ₹ 1,86,250

Question Num – Q15

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.

Answer

Year ended Dec 31, 2011

Bus Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2011	To Bank	10,00,000	Dec 31, 2011	By Depreciation	4,50,000
Jan 1, 2011	To Bank	20,00,000	Dec 31, 2011	By Balance c/d	25,50,000
		30,00,000			30,00,000
Jan 1, 2012	To Balance b/d	25,50,000

Year ended Dec 31, 2012

Bus Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2012	To Balance b/d	25,50,000	Dec 31, 2012	By Depreciation	3,82,500
			Dec 31, 2012	By Balance c/d	21,67,500
		25,50,000			25,50,000
Jan 1, 2013	To Balance b/d	21,67,500

Year ended Dec 31, 2013

Bus Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2013	To Balance b/d	21,67,500	Jul 1, 2013	By Depreciation	54,187.50
Jul 1, 2013	To Profit and Loss (profit on sale)	31,687.50	Jul 1, 2013	By Insurance Company	7,00,000
			Dec 31, 2013	By Depreciation	2,16,750
			Dec 31, 2013	By Balance c/d	12,28,250
		21,99,187.50			21,99,187.50
Jan 1, 2014	To Balance b/d	12,28,250

Year ended Dec 31, 2014

Bus Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2014	To Balance b/d	12,28,250	Dec 31, 2014	By Depreciation	1,84,237.50
			Dec 31, 2014	By Balance c/d	10,44,012.50
		12,28,250			12,28,250
Jan 1, 2015	To Balance b/d	10,44,012.50

Profit on destroyed bus: ₹ 31,687.50; Book value on Dec 31, 2014: ₹ 10,44,012.50

Question Num – Q16

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.

Answer

The new truck bought on January 31 is depreciated for 2 months (February–March).

Year ended Mar 31, 2012

Truck Account

Date	Particulars	₹	Date	Particulars	₹
Oct 1, 2011	To Bank	10,00,000	Mar 31, 2012	By Depreciation	1,00,000
Oct 1, 2011	To Bank	10,00,000	Mar 31, 2012	By Balance c/d	19,00,000
		20,00,000			20,00,000
Apr 1, 2012	To Balance b/d	19,00,000

Year ended Mar 31, 2013

Truck Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2012	To Balance b/d	19,00,000	Mar 31, 2013	By Depreciation	1,90,000
			Mar 31, 2013	By Balance c/d	17,10,000
		19,00,000			19,00,000
Apr 1, 2013	To Balance b/d	17,10,000

Year ended Mar 31, 2014

Truck Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2013	To Balance b/d	17,10,000	Jul 1, 2013	By Depreciation	21,375
Jan 31, 2014	To Bank	12,00,000	Jul 1, 2013	By Insurance Company	6,00,000
			Jul 1, 2013	By Profit and Loss (loss on sale)	2,33,625
			Dec 31, 2013	By Depreciation	64,125
			Dec 31, 2013	By Bank	1,50,000
			Dec 31, 2013	By Profit and Loss (loss on sale)	6,40,875
			Mar 31, 2014	By Depreciation	20,000
			Mar 31, 2014	By Balance c/d	11,80,000
		29,10,000			29,10,000
Apr 1, 2014	To Balance b/d	11,80,000

Loss on first truck: ₹ 2,33,625; Loss on second truck: ₹ 6,40,875; Book value on Mar 31, 2014: ₹ 11,80,000

Note: The closing balance of ₹ 11,80,000 agrees with the textbook. Its losses (₹ 3,26,250 and ₹ 7,05,000) omit part of the depreciation charged up to the dates of the accidents.

Question Num – Q17

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.

Answer

Book value of the crane sold on Oct 1, 2017 = 5,00,000 – 6 months’ depreciation 25,000 = ₹ 4,75,000; sale price at 10% profit = ₹ 5,22,500. The year runs from April 1 to December 31 (9 months).

Year ended Dec 31, 2017

Cranes Account

Date	Particulars	₹	Date	Particulars	₹
Apr 1, 2017	To Balance b/d	40,00,000	Oct 1, 2017	By Depreciation	25,000
Oct 1, 2017	To Bank	9,00,000	Oct 1, 2017	By Bank	5,22,500
Oct 1, 2017	To Profit and Loss (profit on sale)	47,500	Dec 31, 2017	By Depreciation	2,85,000
			Dec 31, 2017	By Balance c/d	41,15,000
		49,47,500			49,47,500
Jan 1, 2018	To Balance b/d	41,15,000

Profit on crane sold: ₹ 47,500; Book value on Dec 31, 2017: ₹ 41,15,000

Question Num – Q18

Shri Krishan 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.

Answer

Year ended Dec 31, 2014

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jul 1, 2014	To Bank	75,000	Dec 31, 2014	By Depreciation	56,250
Jul 1, 2014	To Bank	6,75,000	Dec 31, 2014	By Balance c/d	6,93,750
		7,50,000			7,50,000
Jan 1, 2015	To Balance b/d	6,93,750

Year ended Dec 31, 2015

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2015	To Balance b/d	6,93,750	Dec 31, 2015	By Depreciation	1,04,062.50
			Dec 31, 2015	By Balance c/d	5,89,687.50
		6,93,750			6,93,750
Jan 1, 2016	To Balance b/d	5,89,687.50

Year ended Dec 31, 2016

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2016	To Balance b/d	5,89,687.50	Oct 1, 2016	By Depreciation	6,633.98
Oct 1, 2016	To Bank	1,25,000	Oct 1, 2016	By Insurance Company	45,000
			Oct 1, 2016	By Profit and Loss (loss on sale)	7,334.77
			Dec 31, 2016	By Depreciation	84,295.31
			Dec 31, 2016	By Balance c/d	5,71,423.44
		7,14,687.50			7,14,687.50
Jan 1, 2017	To Balance b/d	5,71,423.44

Year ended Dec 31, 2017

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2017	To Balance b/d	5,71,423.44	Dec 31, 2017	By Depreciation	85,713.52
			Dec 31, 2017	By Balance c/d	4,85,709.92
		5,71,423.44			5,71,423.44
Jan 1, 2018	To Balance b/d	4,85,709.92

Loss on machine destroyed: ₹ 7,334.77; Book value on Dec 31, 2017: ₹ 4,85,709.92

Note: The closing balance agrees with the textbook (₹ 4,85,709) except for rounding. Nine months’ depreciation (₹ 6,633.98) on the destroyed machine gives a loss of ₹ 7,334.77; the textbook’s ₹ 7,735 has an arithmetic slip.

Question Num – Q19

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 2014 to 2017. Books are closed on December 31, every year.

Answer

The years are taken as 2014–2017 (the textbook prints “2010 to 2013”).

Year ended Dec 31, 2014

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2014	To Bank	5,00,000	Dec 31, 2014	By Depreciation	3,00,000
Jan 1, 2014	To Bank	15,00,000	Dec 31, 2014	By Balance c/d	17,00,000
		20,00,000			20,00,000
Jan 1, 2015	To Balance b/d	17,00,000

Year ended Dec 31, 2015

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2015	To Balance b/d	17,00,000	Dec 31, 2015	By Depreciation	2,55,000
			Dec 31, 2015	By Balance c/d	14,45,000
		17,00,000			17,00,000
Jan 1, 2016	To Balance b/d	14,45,000

Year ended Dec 31, 2016

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2016	To Balance b/d	14,45,000	Mar 1, 2016	By Depreciation	9,031.25
Sep 1, 2016	To Bank	15,00,000	Mar 1, 2016	By Insurance Company	40,000
			Mar 1, 2016	By Profit and Loss (loss on sale)	3,12,218.75
			Dec 31, 2016	By Depreciation	2,37,562.50
			Dec 31, 2016	By Balance c/d	23,46,187.50
		29,45,000			29,45,000
Jan 1, 2017	To Balance b/d	23,46,187.50

Year ended Dec 31, 2017

Machinery Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2017	To Balance b/d	23,46,187.50	Dec 31, 2017	By Depreciation	3,51,928.13
			Dec 31, 2017	By Balance c/d	19,94,259.37
		23,46,187.50			23,46,187.50
Jan 1, 2018	To Balance b/d	19,94,259.37

Loss on one-fourth machinery: ₹ 3,12,218.75; Book value on Dec 31, 2017: ₹ 19,94,259.37

Question Num – Q20

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.

Answer

Year ended Dec 31, 2015

Plant Account

Date	Particulars	₹	Date	Particulars	₹
Jul 1, 2015	To Bank	3,50,000	Dec 31, 2015	By Balance c/d	3,50,000
		3,50,000			3,50,000
Jan 1, 2016	To Balance b/d	3,50,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2015	To Balance c/d	26,250	Dec 31, 2015	By Depreciation	26,250
		26,250			26,250
			Jan 1, 2016	By Balance b/d	26,250

Year ended Dec 31, 2016

Plant Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2016	To Balance b/d	3,50,000	Dec 31, 2016	By Balance c/d	3,50,000
		3,50,000			3,50,000
Jan 1, 2017	To Balance b/d	3,50,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Dec 31, 2016	To Balance c/d	78,750	Jan 1, 2016	By Balance b/d	26,250
			Dec 31, 2016	By Depreciation	52,500
		78,750			78,750
			Jan 1, 2017	By Balance b/d	78,750

Year ended Dec 31, 2017

Plant Account

Date	Particulars	₹	Date	Particulars	₹
Jan 1, 2017	To Balance b/d	3,50,000	Oct 1, 2017	By Provision for Depreciation	1,18,125
Oct 1, 2017	To Bank	4,00,000	Oct 1, 2017	By Bank	1,50,000
			Oct 1, 2017	By Profit and Loss (loss on sale)	81,875
			Dec 31, 2017	By Balance c/d	4,00,000
		7,50,000			7,50,000
Jan 1, 2018	To Balance b/d	4,00,000

Provision for Depreciation Account

Date	Particulars	₹	Date	Particulars	₹
Oct 1, 2017	To Plant	1,18,125	Jan 1, 2017	By Balance b/d	78,750
Dec 31, 2017	To Balance c/d	15,000	Oct 1, 2017	By Depreciation	39,375
			Dec 31, 2017	By Depreciation	15,000
		1,33,125			1,33,125
			Jan 1, 2018	By Balance b/d	15,000

Loss on old plant: ₹ 81,875; Plant at cost ₹ 4,00,000; Provision for depreciation ₹ 15,000 on Dec 31, 2017

Question Num – Q21

An extract of Trial balance from the books of Tahiliani and Sons Enterprises on March 31, 2017 is given below: Sundry debtors ₹ 50,000 (Dr.); Bad debts ₹ 6,000 (Dr.); Provision for doubtful debts ₹ 4,000 (Cr.). Additional Information: Bad Debts proved bad but 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.

Answer

Debtors after further bad debts = 50,000 – 2,000 = ₹ 48,000; new provision = 8% × 48,000 = ₹ 3,840.

Journal

Date	Particulars	Dr. (₹)	Cr. (₹)
2017 Mar 31	Bad Debts A/c …Dr.	2,000
	To Sundry Debtors A/c		2,000
	(Further bad debts written off)
Mar 31	Provision for Doubtful Debts A/c …Dr.	8,000
	To Bad Debts A/c		8,000
	(Total bad debts transferred to provision)
Mar 31	Profit and Loss A/c …Dr.	7,840
	To Provision for Doubtful Debts A/c		7,840
	(Provision raised to the required level)
	Total	17,840	17,840

Bad Debts Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2017	To Balance b/d	6,000	Mar 31, 2017	By Provision for Doubtful Debts	8,000
Mar 31, 2017	To Sundry Debtors	2,000
		8,000			8,000

Provision for Doubtful Debts Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2017	To Bad Debts	8,000	Mar 31, 2017	By Balance b/d	4,000
Mar 31, 2017	To Balance c/d	3,840	Mar 31, 2017	By Profit and Loss (balancing figure)	7,840
		11,840			11,840

Profit and Loss Account (extract)

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2017	To Provision for Doubtful Debts	7,840
		7,840			7,840

Check: bad debts 8,000 + new provision 3,840 – old provision 4,000 = ₹ 7,840 charged to P&L. In the balance sheet, Sundry Debtors ₹ 48,000 less provision ₹ 3,840 = ₹ 44,160.

New provision ₹ 3,840; Profit and Loss Account debited with ₹ 7,840

Question Num – Q22

The following information are extract 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.

Answer

Debtors = 80,500 – 500 = ₹ 80,000; new provision = 2% × 80,000 = ₹ 1,600. Total bad debts = 1,000 + 500 = ₹ 1,500.

Bad Debts Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2017	To Balance b/d	1,000	Mar 31, 2017	By Provision for Bad Debts	1,500
Mar 31, 2017	To Sundry Debtors	500
		1,500			1,500

Provision for Bad Debts Account

Date	Particulars	₹	Date	Particulars	₹
Mar 31, 2017	To Bad Debts	1,500	Mar 31, 2017	By Balance b/d	5,000
Mar 31, 2017	To Profit and Loss (excess written back)	1,900
Mar 31, 2017	To Balance c/d	1,600
		5,000			5,000

Profit and Loss Account (extract)

Date	Particulars	₹	Date	Particulars	₹
			Mar 31, 2017	By Provision for Bad Debts (excess)	1,900
		1,900			1,900

Old provision ₹ 5,000 exceeds bad debts plus new provision (1,500 + 1,600 = 3,100) by ₹ 1,900, which is credited to P&L.

New provision ₹ 1,600; Profit and Loss Account credited with ₹ 1,900

Topic checklist

Meaning, causes and need of depreciation; depletion and amortisation
Cost, residual value and useful life
Straight line and written down value methods (part-year depreciation)
Recording: asset account method vs provision for depreciation method
Disposal of assets, with and without an asset disposal account
Provisions vs reserves; types of reserves; provision for doubtful debts

Total questions answered: 44 of 44

Frequently Asked Questions

What do these NCERT solutions for Class 11 Accountancy Financial Accounting I Chapter 7 (Depreciation, Provisions and Reserves) cover?

Every question from the latest NCERT textbook for this chapter are answered step by step, organised as Question TYU – I, Question TYU – II, Question TYU – III, Questions for Practice – Short Answers, Question SA – Q1, Question SA – Q2, Question SA – Q3 and Question SA – Q4.

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Yes. The answers follow the current NCERT textbook for Class 11 Accountancy Financial Accounting I and the latest CBSE syllabus, so the question numbers and wording match the book you use in class.

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