Answered

16. A company purchased machinery on January 1, 2017, for Rs 95,000 and spent Rs 5,000 for its installation. On June 30, 2018, additional machinery costing Rs 50,000 was purchased. On July 1, 2019, the machinery purchased on January 1, 2017, became obsolete and was sold for Rs 40,000. Depreciation is provided at [tex][tex]$10\%$[/tex][/tex] p.a. using the diminishing balance method. The accounts are closed on [tex][tex]$31^{st}$[/tex][/tex] December each year.

Required: Machinery account (2017 - 2019)



Answer :

GinnyAnswer
Certainly! Here is the detailed, step-by-step solution for the Machinery Account for the years 2017 to 2019:

### Initial Purchase and Installation (January 1, 2017)
- Purchase Cost: Rs 95,000
- Installation Cost: Rs 5,000
- Total Initial Cost: Rs 100,000

### Depreciation for 2017
- Depreciation Rate: 10%
- Depreciation Expense for 2017: Rs 100,000 10% = Rs 10,000
- Carrying Amount at End of 2017: Rs 100,000 - Rs 10,000 = Rs 90,000

### Depreciation for 2018 (Before Additional Purchase)
- Depreciation Rate: 10%
- Depreciation Expense for Initial Machinery (2018): Rs 90,000 10% = Rs 9,000
- Carrying Amount of Initial Machinery (June 30, 2018): Rs 90,000 - Rs 9,000 = Rs 81,000

### Additional Machinery Purchase (June 30, 2018)
- Additional Machinery Cost: Rs 50,000
- Total Carrying Amount (Including Additional Machinery): Rs 81,000 + Rs 50,000 = Rs 131,000

### Depreciation for 2018 (After Additional Purchase)
- Depreciation Rate: 10%
- Depreciation Expense for Additional Machinery (Half Year): (Rs 50,000 10%) 0.5 = Rs 2,500
- Total Depreciation for 2018: Rs 9,000 + Rs 2,500 = Rs 11,500
- Carrying Amount at End of 2018: Rs 131,000 - Rs 11,500 = Rs 119,500

### Sale of Initial Machinery (July 1, 2019)
- Sale Proceeds of Initial Machinery: Rs 40,000
- Carrying Amount of Initial Machinery: Rs 81,000
- Adjustment for Sold Machinery: Rs 119,500 - Rs 81,000 + Rs 40,000 = Rs 78,500

### Depreciation for 2019 (Remaining Machinery)
- Depreciation Rate: 10%
- Depreciation Expense for 2019: Rs 78,500 10% = Rs 7,850
- Carrying Amount at End of 2019: Rs 78,500 - Rs 7,850 = Rs 70,650

### Machinery Account Summary (2017 - 2019)

| Date | Details | Amount (Rs) | Date | Details | Amount (Rs) |
|----------------|---------------------------------|-------------|----------------|---------------------------------------|-------------|
| Jan 1, 2017 | To Bank (Initial Purchase) | 95,000 | Dec 31, 2017 | By Depreciation (10%) | 10,000 |
| Jan 1, 2017 | To Bank (Installation) | 5,000 | Dec 31, 2017 | By Balance c/d | 90,000 |
| Jan 1, 2018 | Balance b/d | 90,000 | Dec 31, 2018 | By Depreciation (2018 Initial) (10%) | 9,000 |
| June 30, 2018 | To Bank (Additional Purchase) | 50,000 | Dec 31, 2018 | By Depreciation (2018 Additional) (10% 0.5) | 2,500 |
| July 1, 2019 | By Sale of Initial Machinery | 40,000 | Dec 31, 2018 | By Balance c/d | 119,500 |
| Jan 1, 2019 | Balance b/d | 119,500 | Dec 31, 2019 | By Depreciation (2019 Remaining) (10%)| 7,850 |
| | | | Dec 31, 2019 | By Balance c/d | 70,650 |

Make sure to take note of the dates each transaction or adjustment occurred to accurately reflect them in the machinery account.

Other Questions