24. On April 1, 2015, X Ltd. purchased a machinery for Rs.12.00,000. On Oct 1, 2017, a part of the machinery purchased on April 1, 2015 for Rs. 80,000 was sold for Rs. 45,000 and a new machinery at a cost of Rs.1,58,000 was purchased and installed on the same date. The company has adopted the method of k providing 10% p.a. depreciation on the original cost of the machinery. Show the necessary ledger accounts assuming that a. "Provision for Depreciation Account' is not maintained b. 'Provision for Depreciation Account' is maintained
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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- M/s. Caps Lock purchased a new machine on 1st Jan 2017 for Rs.3,20,000 and also incurred Rs.80,000 on its installation. Another machine was purchased on 1st July 2017 for Rs.1,60,000. On 1st July 2019, the machinery purchased on 1st January 2017 was sold for Rs.2,50,000. Another machine was purchased and installed on 30th September 2019 for Rs.60,000. The company provides for depreciation @ 10% p.a on Original Cost till 2019. From the year 2020 it decided to adapt to WDV method and charge depreciation @ 15% p.a. You are required to show Machinery Account for the year 2019 & 2020 considering the books are closed on 31st December each year.Bhushan & Company purchased a Machinery on 1st April, 2015, for Rs. 54,000 and spent Rs. 6.000 on its installation On 1st December, 2016, & purchased another machine for Rs 30,000 On 30th June 2017, the first machine purchased on 1st April, 2015, is solid for Rs. 36,000 and on the same date it purchased a new machinery for Rs. 80,000 On December 1, 2018, the second machine (purchanied on December 1, 2016, was also sold off for Rs 26,000 Depreciation was provided on machinery@ 10% pa on Original Cost Method annually on 31st March. Give the machinery account for four years.Mwakisha, a contractor, started business on 1 January 2018. Purchases and disposals of machines over the subsequent three years were as follows: Machine Date of Cost Date of Purchase Disposal Shs. MA 1 1 January 2018 5,000,000 MB 2 1 July 2019 2,500,000 1 June 2020 MC 3 1 October 2020 7,000,000 The machines are depreciated on straight line basis using a rate of 20 per cent per annum. Required: For the years 2018, 2019 and 2020, calculate the depreciation…
- J. Mwakisha, a contractor, started business on 1 January 2018. Purchases and disposals of machines over the subsequent three years were as follows: Machine date of purchase cost date of disposal MA 1 1 January 2018 5,000,000 MB 2 1 July 2019 2,500,000 1 June 2020 MC 3 1 October 2020 7,000,000 The machines are depreciated on straight line basis using a rate of 20 per cent per annum. Required: For the years 2018, 2019 and 2020, calculate the depreciation attributable to each year using prorata or time basis.On 1 November 2018, Graceville Ltd purchased an item of property, plant and equipment for $50 000. The terms of the purchase were as follows: $50 000 could be paid within 30 days, or $65 000 in one year’s time. The management of Graceville opted to pay $65 000 in one year’s time. Delivery and handling costs of $4 000 were incurred, as well as engineering fees of $1 200 to ensure that the asset was correctly installed. The asset began operations on 6 January 2019. During January, holding costs of $5 000 were incurred because the asset was operating at less than full capacity. In addition, $900 costs comprising labour and small parts were incurred in day-to-day servicing of the asset. Management of Graceville Ltd uses the revaluation model to account for the asset. Required Prepare any necessary general journal entry(ies) to initially record and measure the asset in accordance with the requirements of AASB 116 ‘Property, Plant and Equipment’.On January 1, 2017, Salina Company purchased land and a building for $2,240,000. At the time of the purchase, it was estimated that the building had a market value of $1,400,000. On January 5, Salina installed a fence around the property at a cost of $14,000. Given this information, the entry to record the cost of the fence would include a a.Debit to Fence Expense for $14,000. b.Debit to Land for $14,000. c.Credit to Land for $14,000. d.Debit to Land Improvements for $14,000.
- vardhaman traders purchased a machinery on 4.4.2019 at a price of rs 250000 and paid rs50000 on the carriage of the machinery to bring it to the factory premises. the management decides that charging depreciation as per the wdv method will make more sense. it was decided that – the depreciation would be charged @15% on wdv method the useful life of the machinery is 5 years the machinery has been disposed off at the completion of 3 years at a value of rs200000 required- discuss the concept of charging depreciation through wdv method. calculate the closing wdv and depreciation for all the first three years. calculate the profit and loss, if any on the disposal of the asset is this possible for any business entity to change the method of charging depreciationReported in the ledger of Mama Company On December 31, 2017, is a Patent account with a balance of P120,000, and accumulated amortization of P 60,000. The Patent is being amortized for its useful life of eight years. On January 1, 2018, Mayumi purchased a competing patent for a total cost of P75,000. The newly purchased patent is expected to be used for five years. On July 1, 2018, Mama spent P 50,000 to defend its new patent against an infringement suit. What is the carrying value of the patents on December 31, 2018?M/s. Green Channel purchased a second-hand machine on 1st January, 2015 for 1,60,000. Overhauling and Erection charges amounted to $ 40,000. Another machine was purchased for $ 80,000 on 1st July, 2015. On 1st July, 2017, the machine installed on 1st January, 2015 was sold for $ 1,00,000. Another machine amounted to 30,000 was purchased and was installed on 30th September, 2017. Under the existing practice the company provides depreciation @ 10% p.a. on original cost. However, from the Year 2018 it decided to adopt WDV method and to charge depreciation 15% p.a. You are required to prepare Machinery account for the years 2015 to 2018.
- On 1st Jan 2017,a company purchased a machine costing Rs. 500,000. Its estimated workinglife is 20 years at the end of which it will fetch Rs. 20000. Additions are made on 1st January2018 and 1st July 2019 to the value of Rs. 80,000 (scrap value Rs. 4000) and Rs. 40000(scrapvalue Rs. 2000) respectively. The life of both new machines is 20 years. Show machine A/c forfirst four years.Raj Ltd purchased a machine on 1st January 2019 for ₤100,000. Transporting the machine to its factory cost ₤1,600 and ₤1,000 was spent on installing it. Maintenance of the machine cost ₤750 in 2019 and the expenditure on maintenance increased by ₤200 in each of the following four years. The machine was expected to last until 31st December 2026 with a scrap (or residual) value at that date of ₤6,600. The company uses the straight-line method of depreciation. It provides for a full year’s depreciation in the year of acquisition and none in the year of sale. The machine was sold for ₤34,000 on 30th June 2023. Required: Explain briefly what you understand by the term “depreciation” as used by accountants. In what circumstances would straight-line be the most appropriate method to use for an asset? Give the following calculations: (i) the depreciation charge for 2019;(ii) the profit or loss on sale of the machine in 2023.The following information relates to a company which prepares financial statements to 31st December each year: (a) On 1st January 2017, the company acquired new plant costing Ghs10million. This plant will require a complete overhaul after five years of use, at an estimated cost of Ghs1million. Accordingly, the company wishes to make a provision of Ghs200,000 for plant overhaul costs in its financial statement for the year to 31st December 2017 and then to increase this provision by Ghs200,000 every year for the next four years. This will have the effect of spreading the overhaul costs yearly over the years 2017 to 2021. (b) On 31st December 2017, the company moved from leased premises into new freehold premises. The lease on the old premises will continue for three more years at an annual cost of Ghs100,000. The lease cannot be cancelled and the premises cannot be sublet or used for any other purpose. The company wishes to make a provision of Ghs300,000 in its financial statements for…