Maharashtra Board Class 11 Commerce BK Chapter 7 Depreciation Solutions

Class 11 Commerce BK Chapter 7 Exercise Solutions

1. Answer In One Sentence Only.

 

Question 1. What is depreciation?
Answer: Depreciation is a gradual, continuous, and permanent decline or decrease in the value of a fixed asset due to its use, wear and tear or any other similar reason.
In simple words: Depreciation is the loss in value of an asset over time due to usage, aging, or obsolescence. It reflects how much of an asset's value has been consumed.

🎯 Exam Tip: Understanding the fundamental definition of depreciation is crucial for theoretical questions and sets the basis for practical problems.

 

Question 2. Why depreciation is charged?
Answer: Depreciation on fixed assets is charged to ascertain the correct profit or loss on its sale, to show assets at the correct value in the Balance sheet, and to provide for its replacement.
In simple words: Depreciation is charged to accurately reflect an asset's value on the balance sheet, determine true profit or loss, and create funds for replacing the asset later.

🎯 Exam Tip: Knowing the reasons for charging depreciation helps in comprehending its accounting significance and application in financial statements.

 

Question 3. What is a 'Scrap Value' of an asset?
Answer: The total amount whatsoever received by selling used or obsolete assets or their spare parts is called residual.
In simple words: Scrap value (or residual value) is the estimated worth of an asset when it is no longer useful and is sold at the end of its economic life.

🎯 Exam Tip: Scrap value is a key component in calculating depreciation, especially under the Straight-Line Method, so remember its definition.

 

Question 4. Why depreciation is charged even in the year of loss?
Answer: Fixed assets are used even in the year of loss and the use of fixed assets reduces its value and hence depreciation is charged even in the year of loss.
In simple words: Depreciation is a non-cash expense that reflects asset usage, so it is charged irrespective of whether a business makes a profit or incurs a loss, as the asset's value still diminishes.

🎯 Exam Tip: This question tests the understanding that depreciation is a fundamental accounting principle (matching principle) and not dependent on profitability.

 

Question 5. Which account is credited when depreciation is charged?
Answer: The concerned fixed asset account is credited when depreciation is charged.
In simple words: When depreciation is charged, the asset account itself is credited to reduce its book value, while the depreciation account is debited.

🎯 Exam Tip: Remember the basic journal entry for charging depreciation: Depreciation Account (Dr.) to Asset Account (Cr.).

 

Question 6. Where is the profit or loss on sale of the asset is transferred?
Answer: The profit or loss on the sale of assets is transferred to the profit and loss account.
In simple words: Any profit or loss made from selling an asset is recorded in the Profit and Loss Account to reflect its impact on the company's net income for the period.

🎯 Exam Tip: This is a standard accounting treatment; ensure you know that the final financial impact of asset disposal goes to the P&L account.

 

Question 7. To which account balance of Depreciation A/c is transferred?
Answer: The balance of Depreciation A/c is transferred to profit and loss A/c at the end of the year.
In simple words: At the end of each financial year, the total depreciation charged on assets is moved from the Depreciation Account to the Profit and Loss Account as an expense.

🎯 Exam Tip: The Depreciation Account is a nominal account, and like other expenses, its balance is closed by transferring it to the Profit and Loss Account.

 

Question 8. What is the formula to calculate depreciation by the Straight Line Method?
Answer: Depreciation per annum = \[ \frac{\text{Cost of Fixed Asset - Scrap Value}}{\text{Estimated Life of Fixed Asset}} \]
In simple words: The Straight Line Method calculates depreciation by taking the original cost of an asset, subtracting its estimated scrap value, and then dividing that amount by its useful life in years.

🎯 Exam Tip: Memorize this formula as it's fundamental for all calculations involving the Straight Line Method of depreciation.

 

Question 9. What is Fixed Instalment Method?
Answer: A method of charging depreciation in which depreciation is charged on fixed assets at a fixed percentage of its original cost is called the fixed installment method.
In simple words: The Fixed Installment Method, also known as the Straight Line Method, charges the same amount of depreciation each year based on the asset's original cost.

🎯 Exam Tip: Recognize that "Fixed Instalment Method" is synonymous with "Straight Line Method" and focuses on consistent depreciation over an asset's life.

 

Question 10. Which account is debited when expenses are paid on the installation of the Machinery?
Answer: The machinery account is debited when expenses are paid for the installation of machinery.
In simple words: Installation expenses for machinery are capitalized, meaning they are added to the cost of the machinery itself, thus debiting the Machinery Account.

🎯 Exam Tip: Remember the capitalization rule: all expenses incurred to bring an asset to its working condition are added to the asset's cost.

2. Write The Word/Term/Phrase Which Can Substitute Each Of The Following Statements:

 

Question 1. A continuous, gradual, and permanent reduction in the value of the fixed assets.
Answer: Depreciation
In simple words: The term that describes the ongoing and irreversible decrease in the value of an asset is depreciation.

🎯 Exam Tip: This is a direct definition; ensure you can associate these key characteristics with the term 'depreciation'.

 

Question 2. The expenditure incurred for purchase, installation charges, etc. of an asset.
Answer: Cost of Asset
In simple words: All expenses necessary to acquire an asset and make it ready for its intended use are aggregated to determine its total cost.

🎯 Exam Tip: Remember that "Cost of Asset" includes not just the purchase price but also any direct expenses like installation, freight, etc., to bring it to working condition.

 

Question 3. The amount that a fixed asset is expected to realize at its disposal.
Answer: Scrap Value
In simple words: The anticipated residual amount an asset will fetch upon its sale after it has reached the end of its useful life is known as its scrap value.

🎯 Exam Tip: This is the definition of scrap value, a crucial input in depreciation calculations.

 

Question 4. The period for which the asset remains in working condition.
Answer: The life period of asset
In simple words: The duration an asset is expected to be economically productive and useful to the business is referred to as its useful life or life period.

🎯 Exam Tip: The useful life of an asset is a primary factor in determining the annual depreciation charge.

 

Question 5. The method of depreciation in which the total depreciation is equally spread over the life of the asset.
Answer: Fixed Instalment Method
In simple words: This method ensures a consistent and equal amount of depreciation is charged each year throughout the asset's operational life.

🎯 Exam Tip: This definition clearly points to the Straight Line or Fixed Installment Method where depreciation is constant annually.

 

Question 6. The method of depreciation in which the rate of depreciation is fixed but the amount of depreciation reduces every year.
Answer: Reducing Balance Method
In simple words: In this method, a fixed percentage is applied to the declining book value of the asset each year, resulting in decreasing depreciation amounts over time.

🎯 Exam Tip: Understand the key characteristic of the Reducing Balance Method: a constant rate on a reducing balance leads to decreasing annual depreciation.

 

Question 7. The type of asset on which depreciation is charged.
Answer: Fixed Asset
In simple words: Depreciation is exclusively charged on long-term assets, such as machinery, buildings, and furniture, which are held for productive use and decline in value.

🎯 Exam Tip: Clearly distinguish between fixed assets (depreciable) and current assets (not depreciable) when considering depreciation.

 

Question 8. Expenses incurred for fixation of the new asset to bring it in working condition.
Answer: Installation Charges
In simple words: These are costs directly related to setting up and preparing a newly purchased asset for its intended operational use.

🎯 Exam Tip: Remember that installation charges are capitalized, meaning they are added to the initial cost of the asset, not treated as a separate expense.

 

Question 9. Excess of the Selling price of a fixed asset over its Written Down Value.
Answer: Profit on Sale of Asset
In simple words: When an asset is sold for more than its current book value (Written Down Value), the difference is recognized as a profit.

🎯 Exam Tip: This is a direct definition of profit on the sale of an asset, which is a common calculation in depreciation chapters.

 

Question 10. Method of depreciation that cannot reach zero value.
Answer: Diminishing Balance Method
In simple words: The Diminishing Balance Method continuously reduces the asset's book value, but because it applies a percentage to a decreasing base, the value never fully reaches zero.

🎯 Exam Tip: This is a key distinguishing feature of the Diminishing Balance Method compared to the Straight Line Method, which can bring the asset's book value down to its scrap value.

3. Select The Most Appropriate Answers From The Alternatives Given Below And Rewrite The Sentence.

 

Question 1. Decrease in the value of fixed assets is known as ________
(a) Depreciation
(b) Appreciation
(c) Combination
(d) None of these
Answer: (a) Depreciation
In simple words: The natural reduction in the value of a long-term asset over time due to use or age is precisely defined as depreciation.

🎯 Exam Tip: This is a basic definition. Ensure you can differentiate between depreciation (decrease) and appreciation (increase in value).

 

Question 2. Depreciation is charged only on ________ assets.
(a) Fixed
(b) Current
(c) Non-performing
(d) Fictitious
Answer: (a) Fixed
In simple words: Depreciation is an expense allocated to tangible long-term assets, such as machinery or buildings, but not to short-term assets like inventory or cash.

🎯 Exam Tip: Remember that depreciation applies exclusively to fixed assets that have a useful life greater than one year and are subject to wear and tear or obsolescence.

 

Question 3. The amount spent on installation of new machinery is a ________ expenditure.
(a) Revenue
(b) Capital
(c) Deferred Revenue
(d) Income
Answer: (b) Capital
In simple words: Expenses incurred to bring a new asset into a usable condition, such as installation costs, are considered capital expenditures because they add to the asset's value.

🎯 Exam Tip: Capital expenditures increase the asset's value and benefit future periods, unlike revenue expenditures which are consumed within the current period.

 

Question 4. The amount that a fixed asset is expected to realise on its disposal is known as ________
(a) Book value
(b) Scrap value
(c) Market value
(d) Original value
Answer: (b) Scrap value
In simple words: The estimated resale value of an asset at the end of its useful life, after all depreciation has been accounted for, is termed its scrap value.

🎯 Exam Tip: Scrap value is also referred to as residual value or salvage value, and it's a critical figure in calculating depreciation.

 

Question 5. The amount of depreciation reduces year after year under ________
(a) Fixed Instalment Method
(b) Written Down Value Method
(c) Depreciation Fund Method
(d) Revaluation Method
Answer: (b) Written Down Value Method
In simple words: The Written Down Value Method calculates depreciation on the asset's reducing balance, causing the annual depreciation amount to decrease over time.

🎯 Exam Tip: This is a key characteristic of the Written Down Value Method (also called Diminishing Balance Method) where depreciation charges are higher in earlier years.

 

Question 6. The amount of depreciation remains constant every year under ________
(a) Straight Line Method
(b) Diminishing Balance Method
(c) Revaluation Method
(d) Insurance Policy Method
Answer: (a) Straight Line Method
In simple words: With the Straight Line Method, an equal portion of an asset's depreciable cost is allocated as an expense in each period throughout its useful life.

🎯 Exam Tip: This is a defining feature of the Straight Line Method, making it simple and predictable for depreciation calculations.

 

Question 7. The balance of depreciation account is transferred to ________
(a) Manufacturing A/c
(b) Trading A/c
(c) Profit & Loss A/c
(d) Balance sheet
Answer: (c) Profit and Loss A/c
In simple words: As an expense, the total accumulated depreciation for a period is transferred to the Profit and Loss Account to determine the net profit or loss.

🎯 Exam Tip: Always remember that the Depreciation Account is closed by transferring its balance to the debit side of the Profit and Loss Account.

4. State Whether The Following Statements Are True Or False With Reasons.

 

Question 1. Depreciation is charged on fixed assets.
Answer: This statement is True. Fixed assets working life is longer. The working life of all fixed assets decreases with the passage of time. The value of assets decreases every year so a reduction in the value of fixed assets due to its use, wear and tear depreciation is charged on fixed assets.
In simple words: True, because fixed assets are long-term investments that lose value over their useful life due to usage and time, and accounting principles require this reduction to be recorded.

🎯 Exam Tip: This fundamental concept is crucial. Clearly state "True" and provide a concise reason explaining why fixed assets depreciate.

 

Question 2. Depreciation increases the value of the asset.
Answer: This statement is False. Depreciation reduces the value of the fixed assets. The working life of all fixed assets decreases with the passage of time and its wear and tear.
In simple words: False, depreciation specifically accounts for the reduction in an asset's value over its useful life, rather than increasing it.

🎯 Exam Tip: Understand that depreciation is a process of cost allocation and value reduction, not appreciation.

 

Question 3. Balance of the depreciation account is transferred to Profit and Loss A/c.
Answer: This statement is True. Depreciation is charged to profit and Loss A/c as it is an element of Cost. It is also essential to arrive at true value of the asset and also net profit or Loss during a particular accounting period. Even if an asset is not in use, its value is reduced due to the passage of time. Depreciation is Cost/Loss to the business. It is a noncash expenditure.
In simple words: True, the depreciation expense for a period is transferred to the Profit and Loss Account to reflect the accurate cost of using assets and determine the true financial performance.

🎯 Exam Tip: Emphasize that depreciation is an expense and, like all expenses, contributes to the calculation of net profit/loss in the P&L account.

 

Question 4. The Profit or Loss on the sale of the asset is ascertained only after charging depreciation.
Answer: This statement is True. Cost on date of sale can be ascertained only after deducting depreciation from date of purchase till the date of sale after that it is possible to compare between cost on the date of sale and selling price to ascertain profit or loss on sale of the machine.
In simple words: True, because the profit or loss on an asset sale is determined by comparing its selling price to its book value (cost minus accumulated depreciation) at the time of sale.

🎯 Exam Tip: To calculate profit/loss on sale, always calculate the Written Down Value (WDV) up to the date of sale by factoring in all depreciation.

 

Question 5. Wages paid for the installation of Machinery are debited to Wages A/c.
Answer: This statement is False. Wages paid on the installation of machinery are debited to the machinery account as they are the capital nature of expenditures.
In simple words: False, such wages are capitalized by debiting the Machinery Account, as they are necessary costs to make the asset ready for use, rather than a recurring operational wage expense.

🎯 Exam Tip: Distinguish between revenue expenses (like regular wages) and capital expenditures (like installation wages, which increase asset value) for correct accounting treatment.

 

Question 6. It is not necessary to depreciate an asset if it is not in use.
Answer: This statement is False. The working life of fixed assets decreases with passes of time. The value of these assets decreases every year as new technology introduced in the market old becomes outdated so it is necessary to depreciate an asset even it is not in use.
In simple words: False, an asset's value can still decline due to obsolescence or the passage of time, even if it's not being actively used, making depreciation necessary.

🎯 Exam Tip: Depreciation is not only about physical wear and tear but also about factors like technological obsolescence and time, so it's charged even on idle assets.

 

Question 7. Depreciation is charged on Current Assets only.
Answer: This statement is False. Depreciation is charged only on fixed assets and not on current assets working life of fixed assets is longer and it decreases with passes of time. The value of fixed assets decreases every year so depreciation is charged on fixed assets.
In simple words: False, depreciation is exclusively charged on fixed assets, which are long-term assets that wear out or become obsolete, unlike current assets which are short-term and consumed or converted to cash quickly.

🎯 Exam Tip: Ensure a clear understanding of asset classification: fixed assets are depreciated, while current assets are valued differently (e.g., inventory at cost or NRV, whichever is lower).

 

Question 8. Depreciation need not be charged when a business is making a loss.
Answer: This statement is False. Depreciation is charged whether a business is making losses or profits. Depreciation is the non-cash expenditure of the business like all other expenses are charged in the same way depreciation is charge even business is making losses.
In simple words: False, depreciation is an essential accounting expense reflecting asset consumption and is always charged, regardless of whether the business is profitable or incurring losses.

🎯 Exam Tip: Depreciation is a non-cash expense and a statutory requirement for accurate financial reporting; its recording is not contingent on business profitability.

5. Complete The Following Sentences.

 

Question 1. Depreciation is charged on ________ asset.
Answer: Fixed
In simple words: The expense of depreciation is applied to long-term physical assets that have a finite useful life.

🎯 Exam Tip: This is a direct recall question, highlighting the primary category of assets subject to depreciation.

 

Question 2. Wages paid for Installation/fixation of Machinery is debited to ________ account.
Answer: Machinery
In simple words: Any costs to make new machinery operational are added directly to its cost, hence debited to the Machinery Account.

🎯 Exam Tip: Remember the capitalization principle: costs incurred to bring an asset to its working condition are added to the asset's cost.

 

Question 3. Under ________ system, the amount of depreciation changes every year.
Answer: Diminishing Balance
In simple words: The Diminishing Balance (or Written Down Value) Method results in varied depreciation amounts each year because it's calculated on a declining book value.

🎯 Exam Tip: This is a key feature to differentiate the Diminishing Balance Method from the Straight Line Method.

 

Question 4. Depreciation = \[ \frac{\text{Cost of Asset - Scrap Value}}{\text{Estimated Working Life of Asset}} \]
Answer: Scrap value
In simple words: This formula, used for the Straight Line Method, determines annual depreciation by subtracting the asset's future resale value from its original cost, then dividing by its useful years.

🎯 Exam Tip: This question tests your knowledge of the Straight Line Method's formula, specifically the term subtracted from the cost.

 

Question 5. Gradual and permanent decrease in the value of asset is known as ________
Answer: Depreciation
In simple words: This term refers to the systematic reduction in the recorded cost of a fixed asset over its useful life due to various factors.

🎯 Exam Tip: This is a fundamental definition; a clear understanding of depreciation is essential.

 

Question 6. In Fixed Instalment System the amount of depreciation is ________ every year.
Answer: Constant
In simple words: Under the Fixed Instalment System (Straight Line Method), the same amount of depreciation is charged annually throughout the asset's useful life.

🎯 Exam Tip: This is a distinguishing characteristic of the Fixed Instalment Method, which ensures uniform annual depreciation charges.

 

Question 7. The amount spent on installation of Machinery is a ________ expenditure.
Answer: Capital
In simple words: Funds used for installing machinery are considered capital expenses, as they increase the asset's value and are expected to provide benefits for more than one accounting period.

🎯 Exam Tip: Always remember that expenses incurred to make an asset ready for use are capitalized, not treated as revenue expenses.

 

Question 8. ________ is the value which an asset realises at the end of its useful life.
Answer: Scrap value
In simple words: This is the estimated residual value of an asset when it is disposed of after completing its productive use.

🎯 Exam Tip: The term 'scrap value' (or salvage value) is crucial for calculating depreciation under methods like the Straight Line Method.

 

Question 9. Depreciation Account is a ________ account.
Answer: Nominal
In simple words: The Depreciation Account is a nominal account because it records an expense that affects the profit or loss for an accounting period.

🎯 Exam Tip: Recall the types of accounts (Personal, Real, Nominal); expenses like depreciation fall under Nominal accounts, which are closed at the end of the year.

 

Question 10. Depreciation is derived from a Latin word ________
Answer: Depretium
In simple words: The origin of the word 'depreciation' can be traced back to the Latin term 'Depretium', which refers to a reduction in value.

🎯 Exam Tip: This is a factual, historical question; knowing the etymology can sometimes help reinforce the core meaning of the term.

6. Do You Agree Or Disagree With The Following Statements.

 

Question 1. Depreciation is a non-cash expense.
Answer: Agree
In simple words: Agree, depreciation is an expense that reduces net income but does not involve an outflow of cash in the current period, making it a non-cash expense.

🎯 Exam Tip: Understanding depreciation as a non-cash expense is vital for cash flow analysis and financial statement interpretation.

 

Question 2. Underwritten the down value method the Depreciation curve slopes parallel to the 'X' axis.
Answer: Disagree
In simple words: Disagree, under the Written Down Value method, the depreciation amount decreases each year, so its curve would be a downward sloping curve, not parallel to the X-axis.

🎯 Exam Tip: A curve parallel to the X-axis would imply constant depreciation, which is characteristic of the Straight Line Method, not the Written Down Value Method.

 

Question 3. The rate of depreciation depends upon the life of the fixed asset.
Answer: Agree
In simple words: Agree, the useful life of an asset is a crucial factor in determining how quickly its cost should be expensed through depreciation.

🎯 Exam Tip: The useful life and estimated scrap value are primary inputs for calculating the depreciation rate and amount.

 

Question 4. The terminal value of the asset never affects the annual amount of depreciation.
Answer: Disagree
In simple words: Disagree, the terminal value (scrap value) directly influences the depreciable amount (Cost - Scrap Value) under methods like the Straight Line Method, thus affecting the annual depreciation.

🎯 Exam Tip: For methods like Straight Line, a higher scrap value means a lower depreciable amount, and therefore lower annual depreciation.

 

Question 5. By charging depreciation on fixed assets ascertainment of true and fair financial position is possible.
Answer: Agree
In simple words: Agree, charging depreciation ensures that assets are shown at their actual reduced value and expenses are correctly matched with revenues, leading to a more accurate financial picture.

🎯 Exam Tip: Depreciation is crucial for adhering to the matching principle and presenting a realistic financial position and performance of the business.

7. Correct The Following Statement And Rewrite The Statement.

 

Question 1. The residual value of an asset increases the amount of annual depreciation.
Answer: The residual value of an asset decreases the amount of annual depreciation.
In simple words: The correct statement is that a higher residual value actually reduces the depreciable amount (cost minus residual value), thereby leading to a lower annual depreciation charge.

🎯 Exam Tip: Understand the inverse relationship: as residual value increases, the total amount to be depreciated over an asset's life decreases.

 

Question 2. Depreciation is calculated on all assets.
Answer: Depreciation is calculated on fixed assets only.
In simple words: The correct statement is that depreciation is applied exclusively to fixed assets, as current assets are either consumed or converted to cash within a year and do not typically lose value in the same way.

🎯 Exam Tip: Remember the distinction: only tangible fixed assets with a finite useful life are subject to depreciation.

 

Question 3. Underwritten down value method depreciation is calculated on the original cost of an asset.
Answer: Underwritten down value method depreciation is calculated on its opening balance every year.
In simple words: The correct statement clarifies that the Written Down Value method applies the depreciation rate to the asset's book value (opening balance) at the start of each year, not its original cost.

🎯 Exam Tip: This is a crucial distinction between the Written Down Value Method and the Straight Line Method; always apply the rate to the *current* book value for WDV.

 

Question 4. Depreciation provided on assets is debited to an asset accounts.
Answer: Depreciation provided on assets is credited to an asset account.
In simple words: The correct statement is that when depreciation is recorded, the asset account is credited, which reduces its book value on the balance sheet.

🎯 Exam Tip: Recall the basic journal entry: Depreciation Account (Dr.) and Asset Account (Cr.), indicating a reduction in the asset's value.

 

Question 5. Profit on sale of the asset is credited to an asset account.
Answer: Profit on sale of the asset is debited to an asset account.
In simple words: The correct statement indicates that any profit on the sale of an asset implies that the asset was sold for more than its book value, leading to a debit to the asset account as part of the disposal entry before the final profit transfer.

🎯 Exam Tip: Profit/loss on sale is determined after removing the asset's book value from the books. The actual profit/loss is then transferred to the Profit and Loss Account.

8. Calculate The Following.

 

Question 1. A machine costing Rs. 23,000 is estimated to have a life of 7 years and the scrap value is estimated at Rs. 2,000 at the end of its useful life. Find out the amount of depreciation p.a.
Answer:
Depreciation p.a. = \[ \frac{\text{Cost of Asset - Scrap Value}}{\text{Estimated Life of Asset}} \]
= \[ \frac{\text{Rs. 23,000 - Rs. 2,000}}{\text{7}} \]
= \[ \frac{\text{Rs. 21,000}}{\text{7}} \]
= Rs. 3,000 p.a.
In simple words: The annual depreciation is calculated by subtracting the scrap value (Rs. 2,000) from the original cost (Rs. 23,000) and then dividing by the asset's useful life (7 years), resulting in Rs. 3,000 per year.

🎯 Exam Tip: For straightforward depreciation calculations, clearly write the formula, substitute values carefully, and show all steps to avoid errors and secure full marks.

 

Question 2. If the cost of the Computer is Rs. 40,000 and depreciation is to be charged at 8% p.a. Calculate the amount of depreciation.
Answer:
Solution:
Depreciation p.a. = Cost of computer \(\times\) percentage
= Rs. 40,000 \(\times \frac{8}{100}\)
= Rs. 3,200 p.a.
In simple words: To find the annual depreciation, simply calculate 8% of the computer's original cost, which is Rs. 40,000, resulting in Rs. 3,200.

🎯 Exam Tip: When depreciation is given as a percentage of the cost, directly apply the percentage to the original cost unless specified otherwise (e.g., Written Down Value method).

 

Question 3. Mr. 'X' purchased Furniture on 1st October 2015 at Rs. 2,80,000 and spent Rs. 20,000 on its installation. He provides depreciation at 6% under the straight-line method on 31st March 2016. Calculate the amount of depreciation.
Answer:
Solution:
Depreciation as per straight line method = Cost of Furniture \(\times\) Percentage \(\times\) Period
= Rs. (2,80,000 + 20,000) \(\times \frac{6}{100} \times \frac{6}{12}\)
= Rs. 3,00,000 \(\times \frac{6}{100} \times \frac{6}{12}\)
= Rs. 9,000
In simple words: First, add the purchase cost and installation charges to get the total asset cost (Rs. 3,00,000). Then, calculate 6% depreciation on this total cost for the 6 months the asset was used (October 2015 to March 2016), which gives Rs. 9,000.

🎯 Exam Tip: Remember to capitalize installation charges by adding them to the asset's cost. Also, calculate depreciation for the exact period the asset was in use within the financial year.

 

Question 4. M/s Sitaram and Co Purchased a Machinery on 1st January 2016 for Rs. 2,00,000. The company provides depreciation @ 10% p.a. on Reducing Balance Method on 31st March every year. Calculate Written Down Value of Machinery as of 31st March 2017.
Answer:
Solution:
Original cost on 01.01.2016 = Rs. 2,00,000
Less: Dep for 2015-16 for 3 months = Rs. 5,000
W.D.V. on 01.04.2016 = Rs. 1,95,000
Less: Dep for 2016-17 for 12 months = Rs. 19,500
W.D.V. on 31st March, 2017 = Rs. 1,75,500
In simple words: The Written Down Value on March 31, 2017, is found by first calculating 3 months' depreciation (Jan-Mar 2016) on the original cost, then deducting it to get the WDV for April 1, 2016. Subsequently, 12 months' depreciation (Apr 2016-Mar 2017) is calculated on this WDV and deducted to arrive at the final WDV.

🎯 Exam Tip: When using the Reducing Balance Method, ensure depreciation for each period is calculated on the *Written Down Value* at the beginning of that period, and adjust for partial years of use.

 

Question 5. On 1st July 2016 M/s. Ramai & Co. sold Machinery for Rs. 7,000 the original cost of Rs. 10,000 which was purchased on 18th April 2015. Find out the profit or loss on sale of Machinery by charging depreciation at 10% p.a. on original cost on 31st March every year.
Answer:
Solution:
Original cost of machinery on 01.04.2015 = Rs. 10,000
Less: Dep for 2015-16 for 12 months = Rs. 1,000
W.D.V. on 01.04.2016 = Rs. 9,000
Less: Dep for 2016-17 for 3 months = Rs. 250
W.D.V. on 01.07.2016 = Rs. 8,750
Less: Selling price = Rs. 7,000
\(\therefore\) Loss on sale of machinery = Rs. 1,750
In simple words: To find the loss, first calculate the Written Down Value (WDV) of the machinery on the sale date (July 1, 2016) by deducting 10% depreciation on its original cost for each full year and then for the partial period. The difference between this WDV (Rs. 8,750) and the selling price (Rs. 7,000) is the loss on sale (Rs. 1,750).

🎯 Exam Tip: When calculating profit/loss on sale, always determine the asset's book value (WDV) precisely up to the date of sale, deducting all accumulated depreciation.

Practical Problems On Straight Line Method

 

Question 1. On 1st April 2015, Farid of Nasik purchased a Motor Car for Rs. 55,000. The scrap value of the Motor Car was estimated at Rs. 10,000 and its estimated life is 10 years. The Registration charge for the Motor Car was Rs. 5,000. Show Motor Car Account for first four years, assuming that the books of accounts are closed on 31st March every year.
Answer:
Solution:
In the books of Farid, Nasik Motor Car Account

Dr.								Cr.
Date	Particulars	J.F.	Amt Rs.	Date	Particulars	J.F.	Amt Rs.
2015				2016
Apr. 1	To Cash/Bank A/c		60,000	Mar. 31	By Depreciation A/c		5,000
	(55,000 + 5,000)			Mar. 31	By Balance c/d		55,000
			60,000				60,000
2016				2017
Apr. 1	To Balance b/d		55,000	Mar. 31	By Depreciation A/c		5,000
				Mar. 31	By Balance c/d		50,000
			55,000				55,000
2017				2018
Apr. 1	To Balance b/d		50,000	Mar. 31	By Depreciation A/c		5,000
				Mar. 31	By Balance c/d		45,000
			50,000				50,000
2018				2019
Apr. 1	To Balance b/d		45,000	Mar. 31	By Depreciation A/c		5,000
				Mar. 31	By Balance c/d		40,000
			45,000				45,000
2019
Apr. 1	To Balance b/d		40,000

Working Note:
Calculation of Depreciation per annum
Depreciation = \[ \frac{\text{Original Cost of an Asset - Scrap Value}}{\text{Estimated Life of Asset in Years}} \]
= \[ \frac{\text{Rs. 60,000 - Rs. 10,000}}{\text{10}} \]
= \[ \frac{\text{Rs. 50,000}}{\text{10}} \]
= Rs. 5,000 p.a.
In simple words: The Motor Car Account shows the initial cost including registration charges (Rs. 60,000) and then annually records a consistent depreciation of Rs. 5,000, reducing the asset's book value year after year based on the Straight Line Method.

🎯 Exam Tip: For asset accounts, ensure accurate capitalization of initial costs (purchase + installation/registration). Systematically record annual depreciation on the credit side, reducing the asset's balance each year. Always show opening and closing balances.

 

Question 2. On 1st January 2017 'Sai Industries, Nagpur' purchased a Machine costing Rs. 1,65,000 and spent Rs. 15,000 for its installation charges. The estimated life of the Machine is to be 10 years and the scrap value at the end of its life would be Rs. 30,000. On 1st October 2018, the entire Machine was sold for Rs. 1,50,000. Show Machinery Account, Depreciation Account, for the years 2016-17, 2017-18, and 2018-19 assuming that the accounts are closed on 31st March every year.
Answer:
Solution:
In the books of Sai Industries, Nagpur

Dr.	Machinery Account						Cr.
Date	Particulars	J.F.	Amt Rs.	Date	Particulars	J.F.	Amt Rs.
2017				2017
Jan. 1	To Cash/Bank A/c		1,80,000	Mar. 31	By Depreciation A/c		3,750
	(1,65,000 + 15,000)			Mar. 31	By Balance c/d		1,76,250
			1,80,000				1,80,000
2017				2018
Apr. 1	To Balance b/d		1,76,250	Mar. 31	By Depreciation A/c		15,000
				Mar. 31	By Balance c/d		1,61,250
			1,76,250				1,76,250
2018				2018
Apr. 1	To Balance b/d		1,61,250	Oct. 1	By Cash/Bank A/c		1,50,000
				Oct. 1	By Depreciation A/c		7,500
				Oct. 1	By Profit and Loss A/c		3,750
					(Loss on sale)
			1,61,250				1,61,250

Dr.	Depreciation Account						Cr.
Date	Particulars	J.F.	Amt Rs.	Date	Particulars	J.F.	Amt Rs.
2017				2017
Mar. 31	To Machinery A/c		3,750	Mar. 31	By Profit and Loss A/c		3,750
			3,750				3,750
2018				2018
Mar. 31	To Machinery A/c		15,000	Mar. 31	By Profit and Loss A/c		15,000
			15,000				15,000
2018				2019
Oct. 1	To Machinery A/c		7,500	Mar. 31	By Profit and Loss A/c		7,500
			7,500				7,500

Working Notes:
1. Calculation of Depreciation per annum:
Depreciation = \[ \frac{\text{Original Cost of an Asset - Scrap Value}}{\text{Estimated Life of Asset in Years}} \]
= \[ \frac{\text{Rs. 1,80,000 - Rs. 30,000}}{\text{10}} \]
= \[ \frac{\text{Rs. 1,50,000}}{\text{10}} \]
= Rs. 15,000 p.a.
2. Calculation of Profit or loss on sale of machine:
Original cost 01.01.2017 = Rs. 1,80,000
Less: Depreciation for 2016-17 (3 months) = Rs. 3,750
W.D.V. on 01-04-2017 = Rs. 1,76,250
Less: Depreciation for 2017-18 (12 months) = Rs. 15,000
W.D.V. on 01.04.2018 = Rs. 1,61,250
Less: Depreciation for 2018-19 (6 months) = Rs. 7,500
W.D.V. on date of sale = Rs. 1,53,750
Less: Selling price = Rs. 1,50,000
\(\therefore\) Loss on sale of machine = Rs. 3,750
In simple words: The Machinery Account tracks the asset's value from purchase, through annual depreciation charges (calculated using the Straight Line Method based on total cost and useful life), up to its sale. The Depreciation Account accumulates these charges annually before transferring them to the Profit and Loss Account, clearly showing the loss incurred on the asset's disposal.

🎯 Exam Tip: When an asset is sold, calculate depreciation up to the date of sale to determine the correct Written Down Value. Compare this WDV with the selling price to find the profit or loss on sale. Always capitalize installation costs.

 

Question 3. Shubhangi Trading Company of Dombivli purchased Machinery for Rs. 86,000 on 1st January 2016 and immediately spent Rs. 4,000 on its fixation and erection. On 1st October 2016 additional Machinery costing Rs. 40,000 was purchased. On 1st October 2017, the Machinery purchased on 1st January 2016 became obsolete and was sold for Rs. 70,000. On 1st July 2017, a new Machine was also purchased for Rs. 45,000. Depreciation was provided annually on 31st March at the rate of 12% per annum on the fixed installment method. Prepare Machinery Account for three years and pass Journal Entries for the Third year i.e. 2017-2018. Solution:
Answer:
In the books of Shubhangi Trading company, Dombivli
Machinery Account

Dr.		J.F.	Amt Rs.	Cr.		J.F.	Amt Rs.
Date	Particular			Date	Particular
2016 Jan. 1	To Cash/Bank A/c (86,000 + 4,000)		90,000	2016 Mar. 31	By Depreciation A/c		2,700
				Mar. 31	By Balance c/d		87,300
			90,000				90,000
2016 Apr. 1	To Balance b/d		87,300	2017 Mar. 31	By Depreciation A/c (10,800 + 2400)		13,200
Oct. 1	To Cash/Bank A/c		40,000	Mar. 31	By Balance c/d		1,14,100
			1,27,300				1,27,300
2017 Apr. 1	To Balance b/d		1,14,100	2017 Oct. 1	By Cash/Bank A/c		70,000
Jul. 1	To Cash/Bank A/c		45,000	Oct. 1	By Depreciation A/c		5,400
				Oct. 1	By Profit and Loss A/c (Loss on sale)		1,100
				2017 Mar. 31	By Depreciation A/c (4,800 + 4,050)		8,850
				Mar. 31	By Balance c/d		73,750
			1,59,100				1,59,100
2018 Apr. 1	To Balance b/d		73,750

Journal of Shubhangi Trading Company

Date	Particulars	L.F.	Debit Rs.	Credit Rs.
2017 July. 1	Machinery A/c To Cash/Bank A/c (Being purchase of machinery)	Dr.	45,000	45,000
Oct. 1	Cash/Bank A/c To Machinery A/c (Being machinery sold)	Dr.	70,000	70,000
Oct. 1	Depreciation A/c To Machinery A/c (Being depreciation charged on the machinery sold)	Dr.	5,400	5,400
Oct. 1	Profit and Loss A/c To Machinery A/c (Being loss on sale of machinery transferred to P&L A/c)	Dr.	1,100	1,100
2018 Mar. 31	Depreciation A/c To Machinery A/c (Being depreciation charged at the end of the year)	Dr.	8,850	8,850
Mar. 31	Profit and Loss A/c To Depreciation A/c (Being balance in Depreciation A/c transferred to P&L A/c)	Dr.	14,250	14,250
Total			1,44,600	1,44,600

Working Note:
Calculation of Profit or loss on sale of machine:
Original cost on 01.01.2016 = Rs. 90,000
Less: Depreciation for 2015-16 (3 months) = Rs. 2,700
W.D.V. on 01-04-2016 = Rs. 87,300
Less: Depreciation for 2016-17 (12 months) = Rs. 10,800
W.D.V. on 01.04.2017 = Rs. 76,500
Less: Depreciation for 2017-18 (6 months) = Rs. 5,400
W.D.V. on date of sale = Rs. 71,100
Less: Selling price = Rs. 70,000
. Loss on sale of machine = Rs. 1,100
In simple words: This solution demonstrates how to prepare a Machinery Account and journal entries using the fixed installment method for depreciation, covering purchases, sales, and annual depreciation charges over three years. It also calculates the loss incurred on the sale of an obsolete machine.

🎯 Exam Tip: Pay close attention to the dates of purchase and sale, as well as the accounting year-end, to correctly calculate depreciation for partial periods and determine profit or loss on asset disposal. Ensure consistent application of the depreciation method.

 

Question 4. On 1st Jan 2015, Triveni Traders Raigad purchased a Plant for Rs. 12,000, and installation charges being Rs. 3,000. On 1st July 2016 another Plant was purchased for Rs. 25,000, on 1st April 2017 another Plant was purchased for Rs. 27,000, wages paid for installation amounted to Rs. 2,000. Carriage paid for the Plant amounted to Rs. 1,000. Show Plant Account up to 31st March 2018 assuming that the rate of depreciation is @ 10% p.a. on Straight Line Method. Solution:
Answer:
In the books of Triveni Traders, Raigad
Plant Account

Dr.		J.F.	Amt Rs.	Cr.		J.F.	Amt Rs.
Date	Particulars			Date	Particulars
2015 Jan. 1	To Cash/Bank A/c (12,000 + 3,000)		15,000	2015 Mar. 31	By Depreciation A/c		375
				Mar. 31	By Balance c/d		14,625
			15,000				15,000
2015 Apr. 1	To Balance b/d		14,625	2016 Mar. 31	By Depreciation A/c		1,500
				Mar. 31	By Balance c/d		13,125
			14,625				14,625
2016 Apr. 1	To Balance b/d		13,125	2017 Mar. 31	By Depreciation A/c (1,500 + 1,875)		3,375
Jul. 1	To Cash/Bank A/c		25,000	Mar. 31	By Balance c/d		34,750
			38,125				38,125
2017 Apr. 1	To Balance b/d		34,750	2018 Mar. 31	By Depreciation A/c (1,500 + 2,500 + 3,500)		7,000
Apr. 1	To Cash/Bank A/c (27,000 + 2,000 + 1,000)		30,000	Mar. 31	By Balance c/d		57,750
			64,750				64,750
2018 Apr. 1	To Balance b/d		57,750

In simple words: This solution presents the Plant Account for Triveni Traders, demonstrating how multiple plant purchases and their associated installation costs are recorded, and how depreciation is calculated annually using the straight-line method over several financial years.

🎯 Exam Tip: When multiple assets are purchased at different times, remember to calculate depreciation for each asset individually based on its purchase date and then sum them up for the total annual depreciation. Also, all costs to bring an asset to its working condition (like installation, carriage) are part of its initial cost.

 

Question 5. Sameer & Company, Mumbai purchased a Machine worth Rs. 2,00,000 on 1st April 2016. On 1st July 2017, the company purchased an additional Machine for Rs. 40,000. On 31st March 2019, the company sold the Machine purchased on 1st July 2017 for Rs. 35,000. The company writes off depreciation at the rate of 10% on the original cost and the books of accounts are closed every year on 31st March. Show the Machinery Account and Depreciation Account for the first three years ending 31st March 2016-17, 2017-18 and 2018-19 Solution:
Answer:
In the books of Sameer & Company, Mumbai
Machinery Account

Dr.		J.F.	Amt Rs.	Cr.		J.F.	Amt Rs.
Date	Particulars			Date	Particulars
2016 Apr. 1	To Cash/Bank A/c		2,00,000	2017 Mar. 31	By Depreciation A/c		20,000
				Mar. 31	By Balance c/d		1,80,000
			2,00,000				2,00,000
2017 Apr. 1	To Balance b/d		1,80,000	2018 Mar. 31	By Depreciation A/c (20,000 + 3,000)		23,000
Jul. 1	To Cash/Bank A/c		40,000	Mar. 31	By Balance c/d		1,97,000
			2,20,000				2,20,000
2018 Apr. 1	To Balance b/d		1,97,000	2019 Mar. 31	By Cash/Bank A/c		35,000
2019 Mar. 31	To Profit and Loss A/c (Profit on sale)		2,000	Mar. 31	By Depreciation A/c (4,000 + 20,000)		24,000
				Mar. 31	By Balance c/d		1,40,000
			1,99,000				1,99,000
2019 Apr. 1	To Balance b/d		1,40,000

Depreciation Account

Dr.		J.F.	Amt Rs.	Cr.		J.F.	Amt Rs.
Date	Particulars			Date	Particulars
2017 Mar. 31	To Machinery A/c		20,000	2017 Mar. 31	By Profit and Loss A/c		20,000
			20,000				20,000
2018 Mar. 31	To Machinery A/c		23,000	2018 Mar. 31	By Profit and Loss A/c		23,000
			23,000				23,000
2019 Mar. 1	To Machinery A/c		24,000	2019 Mar. 31	By Profit and Loss A/c		24,000
			24,000				24,000

Working note:
Calculation of Profit or Loss on sale of machine:
Original cost on 01.07.2017 = Rs. 40,000
Less: Depreciation for 2017-18 (9 months) = Rs. 3,000
W.D.V. on 01-04-2018 = Rs. 37,000
Less: Depreciation for 2018-19 (12. months) = Rs. 4,000
W.D.V. on date of sale = Rs. 33,000
Less: Selling price = Rs. 35,000
. Profit on sale of machine = Rs. 2,000
In simple words: This solution illustrates the accounting treatment for machinery purchases, sales, and annual depreciation over three years using the original cost method. It also includes the calculation of profit on the sale of a machine and how depreciation is transferred to the Profit & Loss Account.

🎯 Exam Tip: When calculating depreciation using the original cost method, remember that the annual depreciation amount remains constant throughout the asset's life, regardless of its written down value. Accurately track each machine's cost and depreciation for correct profit/loss on sale.

 

Question 6. Samarth Manufacturing Co. Ltd, Aurangabad, purchased a New Machinery for Rs. 45,000 on 1st Jan 2015 and immediately spent Rs. 5,000 on its fixation and erection. In the same year, 1st July additional Machinery costing Rs. 25,000 was purchased. On 1st July 2016, the Machinery purchased on 1st Jan 2015 became obsolete and was sold for Rs. 40,000. Depreciation was provided annually on 31st March at the rate of 10% per annum on the Fixed Instalment Method. You are required to prepare Machinery Account for the year 2014-15, 2015-16, 2016-17. Solution:
Answer:
In the books of Samarth Manufacturing Co. Ltd, Aurangabad
Machinery Account

Dr.		J.F.	Amt Rs.	Cr.		J.F.	Amt Rs.
Date	Particulars			Date	Particulars
2015 Jan. 1	To Cash/Bank A/c (45,000 + 5,000)		50,000	2015 Mar. 31	By Depreciation A/c		1,250
				Mar. 31	By Balance c/d		48,750
			50,000				50,000
2015 Apr. 1	To Balance b/d		48,750	2016 Mar. 31	By Depreciation A/c (5,000 + 1,875)		6,875
July 1	To Cash/Bank A/c		25,000	Mar. 31	By Balance c/d		66,875
			73,750				73,750
2016 Apr. 1	To Balance b/d		66,875	2016 July 1	By Cash/Bank A/c		40,000
				July 1	By Depreciation A/c		1,250
				July 1	By P/L A/c (loss on sale)		2,500
				2017 Mar. 31	By Depreciation A/c		2,500
				Mar. 31	By Balance c/d		20,625
			66,875				66,875
2017 Apr. 1	To Balance b/d		20,625

Working Note:
Calculation of Profit or Loss on sale of machine:
Original cost on 01.01.2015 = Rs. 50,000
Less: Depreciation for 2014-15 (3 months) = Rs. 1,250
W.D.V. on 01-04-2015 = Rs. 48,750
Less: Depreciation for 2015-16 (12 months) = Rs. 5,000
W.D.V. on 01-04-2016 = Rs. 43,750
Less: Depreciation for 2016-17 (3 months) = Rs. 1,250
W.D.V. on date of sale = Rs. 42,500
Less: Selling price = Rs. 40,000
. Loss on sale of machine = Rs. 2,500
In simple words: This solution demonstrates how to prepare a Machinery Account using the fixed installment method for depreciation, covering multiple purchases and the sale of an obsolete asset, while correctly calculating depreciation for partial periods and determining the loss on sale.

🎯 Exam Tip: When dealing with multiple asset purchases and sales, it's crucial to apply depreciation individually to each asset from its purchase date to the sale date. Ensure all installation and erection costs are capitalized as part of the asset's original cost.

 

Practical Problems On Written Down Value Method

 

Question 1. M/s Omkar Enterprise Jalgaon acquired a Printing Machine for Rs. 75,000 on 1st Oct 2015 and spent Rs. 5,000 on its transport and installation. Another Machine for Rs. 45,000 was purchased on 1st Jan 2017. Depreciation is charged at the rate of 20% on Written Down Value Method, on 31st March every year. Prepare Printing Machine Account for the first four years. Solution:
Answer:
In the books of M/s Omkar Enterprise Jalgaon.
Printing Machine Accounts

Dr.		J.F.	Amt Rs.	Cr.		J.F.	Amt Rs.
Date	Particulars			Date	Particulars
2015 Oct. 1	To Cash/Bank A/c (75,000 + 5,000)		80,000	2016 Mar. 31	By Depreciation A/c		8,000
				Mar. 31	By Balance c/d		72,000
			80,000				80,000
2016 Apr. 1	To Balance b/d		72,000	2017 Mar. 31	By Depreciation A/c (14,400 + 2,250)		16,650
2017 Jan. 1	To Cash/Bank A/c		45,000	Mar. 31	By Balance c/d		1,00,350
			1,17,000				1,17,000
2017 Apr. 1	To Balance b/d		1,00,350	2018 Mar. 31	By Depreciation A/c		20,070
				Mar. 31	By Balance c/d		80,280
			1,00,350				1,00,350
2018 Apr. 1	To Balance b/d		80,280	2019 Mar. 31	By Depreciation A/c		16,056
				Mar. 31	By Balance c/d		64,224
			80,280				80,280
2019 Apr. 1	To Balance b/d		64,224

In simple words: This solution demonstrates the preparation of a Printing Machine Account over four years, showing how depreciation is calculated annually using the Written Down Value method on multiple machine purchases.

🎯 Exam Tip: Under the Written Down Value method, depreciation is calculated on the asset's book value each year, not its original cost. Ensure accurate calculation of the WDV before applying the depreciation rate annually and for any new purchases.

 

Question 2. Vishal Company, Dhule, purchased Machinery costing Rs. 60,000 on 1st April 2016. They purchased further Machinery on 1st October 2017, costing Rs. 30,000, and on 1st July 2018, costing Rs. 20,000. On 1st Jan 2019, one-third of the Machinery, which was purchased on 1st April 2016, became obsolete and it was sold for Rs. 18,000. Assume that, company account closes on 31st March every year. Show Machinery Account for the first three (3) years and pass journal entries for the Third year, after charging depreciation at 10% p.a. on Written Down Value Method. Solution:
Answer:
In the books of Vishal Company, Dhule.
Printing Machinery Accounts

Dr.		J.F.	Amt Rs.	Cr.		J.F.	Credit Rs.
Date	Particulars			Date	Particulars
2016 Apr. 1	To Cash/Bank A/c		60,000	2017 Mar. 31	By Depreciation A/c		6,000
				Mar. 31	By Balance c/d		54,000
			60,000				60,000
2017 Apr. 1	To Balance b/d		54,000	2018 Mar. 31	By Depreciation A/c (5,400 + 1,500)		6,900
Oct. 1	To Cash/Bank A/c		30,000	Mar. 31	By Balance c/d		77,100
			84,000				84,000
2018 Apr. 1	To Balance b/d		77,100	2019 Jan. 1	By Cash/Bank A/c		18,000
July. 1	To Cash/Bank A/c		20,000	Jan. 1	By Depreciation A/c		1,215
2019 Jan. 1	To Profit and Loss A/c (Profit on sale)		3,015	Mar. 31	By Depreciation A/c		7,590
				Mar. 31	By Balance c/d		73,310
			1,00,115				1,00,115
2019 Apr. 1	To Balance b/d		73,310

Journal of Vishal Company

Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
2018 July 1	Machinery A/c Dr. To Cash/Bank A/c (Being purchase of machinery)		20,000	20,000
2019 Jan. 1	Cash/Bank A/c Dr. To Machinery A/c (Being Sale machinery)		18,000	18,000
Jan. 1	Depreciation A/c Dr. To Machinery A/c (Being depreciation charged on machinery sold)		1,215	1,215
Jan. 1	Machinery A/c Dr. To Profit and Loss A/c (Being profit on sale on machinery)		3,015	3,015
Mar. 31	Depreciation A/c Dr. To Machinery A/c (Being in Depreciation charged at the end of the year)		7,590	7,590
Mar. 31	Profit and Loss A/c Dr. To Depreciation A/c (Being balance in Depreciation A/c transferred to P& L A/c)		8,805	8,805
Total			58,625	58,625

Working Notes:
1. Calculation of Profit or Loss on sale as Machine:
Original cost on 01.04.2016 = Rs. 20,000
Less: Dep. for 2016-17 (12 months) = Rs. 2,000
W.D.V. on 01.04.2017 = Rs. 18,000
Less: Dep. for 2016-17 (12 months) = Rs. 1,800
W.D.V. on 01.04.2018 = Rs. 16,200
Less: Dep. for 2018-19 (9 months) = Rs. 1,215
W.D.V. on date of sale = Rs. 14,985
Less: Selling Price = Rs. 18,000
. Profit on sale & machine = Rs. 3,015
2. Depreciation for 2018-19
(a) Opening balance on 01.04.2018 = Rs. 77,100
Less : W.D.V. of Machine sold on 01.04.2018 = Rs. 16,200
10% depreciation on 60,900 = Rs. 6,090
(b) Purchase of Machine on 01.07.2018 20,000 - 10% - 9 months = Rs. 6,090 + Rs. 1,500 = Rs. 7,590
In simple words: This solution demonstrates the complete accounting treatment for machinery, including multiple purchases, partial sale of an asset, and annual depreciation using the Written Down Value method. It also shows the necessary journal entries for the third year and detailed working notes for calculating profit on sale and depreciation.

🎯 Exam Tip: When a portion of an asset is sold, calculate its specific WDV and depreciation up to the date of sale to determine the exact profit or loss. Also, ensure that journal entries correctly reflect the sale, depreciation on the sold part, and the transfer of the profit/loss on sale.

 

Question 3. Mahesh Traders Solapur purchased Furniture on 1st April 2014 for Rs. 20,000. In the same year on 1st, Oct. additional Furniture was purchased for Rs. 10,000. On 1st Oct. 2015, the Furniture purchased on 1st April 2014 was sold for Rs. 15,000 and on the same day, a new Furniture was purchased for Rs. 20,000. The firm charged depreciation at 10% p.a. on the Reducing Balance Method. Prepare Furniture Account and Depreciation Account for the year ending 31st March 2015, 2016, and 2017. Solution:
Answer:
In the books of Mahesh Traders, Solapur
Furniture Account

Dr.		J.F.	Amt Rs.	Cr.		J.F.	Amt Rs.
Date	Particulars			Date	Particulars
2014 Apr. 1	To Cash/Bank A/c		20,000	2015 Mar. 31	By Depreciation A/c (2,000 + 500)		2,500
Oct. 1	To Cash/Bank A/c		10,000	Mar. 31	By Balance c/d		27,500
			30,000				30,000
2015 Apr. 1	To Balance b/d		27,500	2015 Oct. 1	By Cash/Bank A/c		15,000
Oct. 1	To Cash/Bank A/c		20,000	Oct. 1	By Depreciation A/c		900
				Oct. 1	By Profit and Loss A/c (loss on sale)		2,100
				2016 Mar. 31	By Depreciation A/c		1,950
				Mar. 31	By Balance c/d		27,550
			47,500				47,500
2016 Apr. 1	To Balance b/d		27,550	2017 Mar. 31	By Depreciation A/c		2,755
				Mar. 31	By Balance c/d		24,795
			27,550				27,550
2017 Apr. 1	To Balance b/d		24,795

Depreciation Account

Dr.		J.F.	Amt Rs.	Cr.		J.F.	Amt Rs.
Date	Particulars			Date	Particulars
2015 Mar. 31	To Furniture A/c		2,500	2015 Mar. 31	By Profit and Loss A/c		2,500
			2,500				2,500
2015 Oct. 1	To Furniture A/c		900	2016 Mar. 31	By Profit and Loss A/c		2,850
2016 Mar. 31	To Furniture A/c		1,950
			2,850				2,850
2017 Mar. 31	To Furniture A/c		2,755	2017 Mar. 31	By Profit and Loss A/c		2,755
			2,755				2,755

Working Notes:
1. Calculation of Profit or loss on sale of furniture:
Original cost on 01.04.2014 = Rs. 20,000
Less: Depreciation for 2014-15 (12 months) = Rs. 2,000
W.D.V. on 01.04.2015 = Rs. 18,000
Less: Depreciation for 2015-16 = Rs. 900
W.D.V. on date of sale = Rs. 17,100
Less: Selling price = Rs. 15,000
. Loss on sale of furniture = Rs. 2,100
2. Calculation of Depreciation for 2016 -17:
(a) Opening balance on 01.04.2015 = Rs. 27,500
Less: W.D.V. of furniture sold on 01.04.2015 = Rs. 18,000
9,500 - 10% = Rs. 950
(b) Purchase of furniture on 01.10.2015 - 10% - 6months = 950 + 1,000 = Rs. 1,950
In simple words: This solution provides the Furniture Account and Depreciation Account, detailing how depreciation is calculated using the Reducing Balance Method for multiple furniture purchases and one sale, over several financial years. It also includes the calculation of loss on sale of furniture.

🎯 Exam Tip: When using the Reducing Balance Method, ensure that depreciation is calculated on the *written down value* of the asset at the beginning of each period. For asset sales, calculate depreciation only up to the date of sale to find the correct book value for determining profit or loss.

 

Question 4. Radhika-Masale' Amravati purchased a Plant on 1st Jan. 2015 for Rs. 80,000. A new Plant was also purchased for Rs. 60,000, installation expenses being Rs. 10,000 on 1st April 2016. On 1st Jan 2017, a new Plant was purchased for Rs. 20,000, by disposing of the 1st Plant at Rs. 60,000. Prepare Plant Account and Depreciation Account for 31st March 2015, 31st March 2016, and 31st March 2017, assuming that the rate of depreciation was @ 10% on Diminishing Balance Method. Solution:
Answer:
In the books of Radhika-Masale, Amravati
Plant Account

Dr.		J.F.	Amt Rs.	Cr.		J.F.	Amt Rs.
Date	Particulars			Date	Particulars
2015 Jan. 1	To Cash/Bank A/c		80,000	2015 Mar. 31	By Depreciation A/c		2,000
				Mar. 31	By Balance c/d		78,000
			80,000				80,000
2015 Apr. 1	To Balance b/d		78,000	2016 Mar. 31	By Depreciation A/c		7,800
				Mar. 31	By Balance c/d		70,200
			78,000				78,000
2016 Apr. 1	To Balance b/d		70,200	2017 Jan. 1	By Cash/Bank A/c		60,000
Apr. 1	To Cash/Bank A/c (60,000 + 10,000)		70,000	Jan. 1	By Depreciation A/c		5,265
2017 Jan. 1	To Cash/Bank A/c		20,000	Jan. 1	By P/L A/c (loss on sale)		4,935
				Mar. 31	By Depreciation A/c		7,500
				Mar. 31	By Balance c/d		82,500
			1,60,200				1,60,200
2017 Apr. 1	To Balance b/d		82,500

Depreciation Account

Dr.		J.F.	Amt Rs.	Cr.		J.F.	Amt Rs.
Date	Particulars			Date	Particulars
2015 Mar. 31	To Plant A/c		2,000	2015 Mar. 31	By Profit and Loss A/c		2,000
			2,000				2,000
2016 Mar. 31	To Plant A/c		7,800	2016 Mar. 31	By Profit and Loss A/c		7,800
			7,800				7,800
2017 Jan. 1	To Plant A/c		5,265	2017 Mar. 31	By Profit and Loss A/c		12,765
Mar. 31	To Plant A/c		7,500
			12,765				12,765

Working Notes:
1. Calculation of Profit or loss on sale of plant:
Original cost on 01.01.2015 = Rs. 80,000
Less: Depreciation for 2014-15. (3 months) = Rs. 2,000
W.D.V. on 01.04.2015 = Rs. 78,000
Less: Depreciation for 2015-16 (12 months) = Rs. 7,800
W.D.V. on 01.04.2016 = Rs. 70,200
Less: Depreciation for 2016 -17 (9 months) = Rs. 5,265
W.D.V. on date of sale = Rs. 64,935
Less: Selling price = Rs. 60,000
. Loss on sale of plant = Rs. 4,935
2. Calculation of Depreciation for 2016-17:
(a) Opening balance on 01.04.2016 = Rs. 70,200
Less: W.D.V. of plant sold on 01.04.2016 = Rs. 70,200
Nil - 10% = Nil
(b) Purchase of plant on 01.04.2016 - 10% - 12months = Rs. 7,000
(c) Purchase of plant on 01.01.2017 - 10% - 3m months = Rs. 500
Total = Rs. 7,500
In simple words: This solution demonstrates the preparation of Plant and Depreciation Accounts using the Diminishing Balance Method, detailing multiple plant purchases and the sale of an old plant over three financial years, alongside the calculation of loss on sale.

🎯 Exam Tip: When using the diminishing balance method, always calculate depreciation on the asset's opening balance (WDV) for the year. Ensure correct capitalization of installation expenses and proper calculation of depreciation up to the date of sale for sold assets.

 

Question 5. On 1st April 2015, Suman Traders purchased Machinery for Rs. 30,000. On 1st Oct. 2015, they purchased further Machinery costing Rs. 20,000. On 1st Oct. 2016, they sold the Machine purchased on 1st April 2015 for Rs. 18,000 and brought another Machine for Rs. 15,000 on the same date. Depreciation is provided on Machinery @ 20% p.a. on the Diminishing Balance Method and the financial year closes on 31st March every year. Prepare the Machinery Account and Depreciation Account for the year 2015-16, 2016-17, and 2017-18. Solution:
Answer:
In the books of Suman Traders
Machinery Account

Dr.		J.F.	Amt Rs.	Cr.		J.F.	Amt Rs.
Date	Particulars			Date	Particulars
2015 Apr. 1	To Cash/Bank A/c		30,000	2016 Mar. 31	By Depreciation A/c (6,000 + 2,000)		8,000
Oct. 1	To Cash/Bank A/c		20,000	Mar. 31	By Balance c/d		42,000
			50,000				50,000
2016 Apr. 1	To Balance b/d		42,000	2016 Oct. 1	By Cash/Bank A/c		18,000
Oct. 1	To Cash/Bank A/c		15,000	Oct. 1	By Depreciation A/c		2,400
				Oct. 1	By Profit and loss A/c (Loss on sale)		3,600
				2017 Mar. 31	By Depreciation A/c		5,100
				Mar. 31	By Balance c/d		27,900
			57,000				57,000
2017 Apr. 1	To Balance b/d		27,900	2018 Mar. 31	By Depreciation A/c		5,580
				Mar. 31	By Balance c/d		22,320
			27,900				27,900
2018 Apr. 1	To Balance b/d		22,320

Depreciation Account

Dr.		J.F.	Amt Rs.	Cr.		J.F.	Amt Rs.
Date	Particular			Date	Particular
2016 Mar. 31	To Machinery A/c		8,000	2016 Mar. 31	By Profit and Loss A/c		8,000
			8,000				8,000
2016 Oct. 1	To Machinery A/c		2,400	2017 Mar. 31	By Profit and Loss A/c		7,500
2017 Mar. 31	To Machinery A/c		5,100
			7,500				7,500
2018 Mar. 31	To Machinery A/c		5,580	2018 Mar. 31	By Profit and Loss A/c		5,580
			5,580				5,580

Working Notes:
1. Calculation of Profit or loss on sale of machine:
Original cost on 01.04.2015 = Rs. 30,000
Less: Depreciation for 2015-16 (12 months) = Rs. 6,000
W.D.V. on 01.04.2016 = Rs. 24,000
Less: Depreciation for 2016-17 (6 months) = Rs. 2,400
W.D.V. on date of sale = Rs. 21,600
Less: Selling price = Rs. 18,000
. Loss on sale of machine = Rs. 3,600
2. Calculation of Depreciation for 2016-17:
(a) Opening balance on 01.04.2016 = Rs. 42,000
Less: W.D.V. of machine sold on 01.04.2016 = Rs. 24,000
18,000 - 20% = Rs. 3,600
(b) Purchase of machine on 01.10.2016 - 15,000 - 20% - 6months = 3,600 + 1,500 = Rs. 5,100
In simple words: This solution presents the Machinery Account and Depreciation Account using the Diminishing Balance Method, detailing multiple machinery purchases and sales, including the calculation of loss on sale and annual depreciation over three financial years.

🎯 Exam Tip: Remember that the Diminishing Balance Method applies depreciation on the written down value, meaning the depreciation amount decreases each year. For assets sold during the year, calculate depreciation only up to the date of sale to ascertain the correct profit or loss.

 

Class 11 Commerce Bk Textbook Solutions Digest

• 11th Bk Chapter 1 Practical Problems
• 11th Bk Chapter 2 Practical Problems
• 11th Bk Chapter 3 Practical Problems
• 11th Bk Chapter 4 Practical Problems
• 11th Bk Chapter 5 Practical Problems
• 11th Bk Chapter 6 Practical Problems
• 11th Bk Chapter 7 Practical Problems
• 11th Bk Chapter 8 Practical Problems
• 11th Bk Chapter 9 Practical Problems
• 11th Bk Chapter 10 Practical Problems

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