Depreciation Provisions and Reserves NCERT Solutions

Depreciation Provisions and Reserves Class 11 NCERT Solutions are available here. This chapter is a significant part of the accountancy syllabus prescribed. Students facing problems while solving the problems of the chapter can take help from the NCERT Solutions of Chapter 7 Depreciation Provisions and Reserves. The solutions are prepared by the top subject experts at SimplyAcad. They have explained the answers of each problem comprehensively and solved the answers of numericals. 

The NCERT Solutions of Depreciation Provisions and Reserves will act as a guide and allow you to make quick revisions before the exams. Go below to check the answers and make sure to practice them regularly.

NCERT Solutions for Class 11 Accountancy Chapter 7 Depreciation Provisions and Reserves

Short Answers for Depreciation Provisions and Reserves Class 11 NCERT Solutions Chapter 7

1. What is Depreciation?

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

2. State briefly the need for providing depreciation.

Depreciation is needed for the following reasons:

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

The major causes of depreciation are listed below:

1. Regular use: Regular use of assets leads to decrement that reduces the value of such assets.

1. Expiry with time: Assets, whether used or not, will show a decline in their effective life with the passage of time. Rain, wind and other Natural forces bring about the deterioration of the asset.
2. Obsolescence: Technological advances will make the current assets obsolete in future

4. Legal rights expiry: An asset’s value becomes zero after its useful life. This is known as depreciation in accounting terms.

1. Accident: The value of an asset can be permanently reduced due to some accident which can include fire, natural calamity etc.

4. Explain basic factors affecting the amount of depreciation

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

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

The points of difference between straight-line method and the written down value method are as follows:

Basis of Comparison	Straight Line Method	Written Down Value Method
How it is calculated	Original asset cost is taken as the basis for calculating Depreciation	Reducing balance is the basis of calculating depreciation. Reducing balance is also known as book value
How depreciation is charged	A fixed amount is deducted every year till the useful life of the asset	Depreciation is deducted based on the written down value of an asset every year till the effective life of an asset.
Value of Asset	It reaches zero at the effective life of the asset and is written off	It never becomes zero and hence not completely written off.
Asset Suitability	Assets such as buildings and lands which require less repair and have less chance of becoming obsolete are suitable for this method	Assets requiring more repair, like machinery, plant, and cars are more suitable
Impact of Depreciation and repairs on P & L account	Increases every year	Remains constant every year

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

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

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

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

The following effects can be seen in the P & L account:

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

Impact on the balance sheet:

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

Basis of Comparison	Provision	Reserve
Meaning	Maintained to meet a liability that is known in nature	Created to meet any liability that is unknown in nature
Nature	It is charged against profit	Appropriation of profit is reserve
Purpose	Formed with a specific liability in mind	Created for fortifying the business
How it is created	By debiting P& L account	By debiting the P & L appropriation account.
Dividend Payment	Not used for paying dividends	Can be utilized for paying dividends
Need of Creation	It needs to be created if the business makes no profit at all	It is created if profit is there in the business

9. Give four examples each of provision and reserves.

Examples of provision:

1. Provision for taxation
2. Provision for discount on debtors
3. Provision for bad and doubtful debts
4. Provision for depreciation

Examples of reserves:

1. Dividend equalisation reserve
2. Debenture redemption reserve
3. General reserve
4. Capital reserve

10. Distinguish between revenue reserve and capital reserve.

Basis of Comparison	Revenue Reserve	Capital Reserve
Source of creation	Revenue received from daily operations of a business.	Profits earned from sale of capital assets.
For paying Dividend	Yes, it can be paid as dividend	No, it cannot be paid as dividend
Purpose	It helps serve the purpose of solidification of the business’s financial position	Serves the purpose of financing long-term projects or writing off capital expenses

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

Revenue reserve examples are as follows:

1. General Reserve
2. Retained Earnings
3. Dividend Equalisation Reserve
4. Debenture Redemption Reserve

Capital reserve examples are as follows:

1. Sale of fixed assets
2. Issues of shares at a premium
3. Profit or issue of shares
4. Profit on redemption of debentures

12. Distinguish between general reserve and specific reserve.

Basis of Comparison	General Reserve	Specific Reserve
Meaning	A reserve created without any specific purpose	Reserve created with a specific purpose
Uses	Can be utilized for whichever purpose necessary for business	It needs to be used only for the purpose it is created
Some examples	Fund reserves, retained earnings	Dividend equalisation reserve, Debenture redemption reserve, etc.

13. Explain the concept of secret reserve.

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

Long Answers for Depreciation Provisions and Reserves Class 11 NCERT Solutions Chapter 7

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

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

Depreciation is needed for the following reasons:

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

The major causes of depreciation are listed below:

1. Regular use: Regular use of assets leads to deterioration which reduces the value of such assets.

1. Expiry with time: Assets, whether used or not, will show a decline in their effective life with the passage of time. Rain, wind and other Natural forces bring about the deterioration of the asset.
2. Obsolescence: Technological advances will make the current assets obsolete in future

4. Legal rights Expiry: The value of an asset becomes zero after its useful life. This is known as depreciation in accounting terms.

1. Accident: The value of an asset can be permanently reduced due to some accident which can include fire, natural calamity etc.

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

Straight Line method

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

Depreciation is calculated using the formulae:

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

Advantages of the Straight-Line Method

1. Simple calculation required
2. The value of an asset can be made zero after its useful life.
3. Comparing P & L accounts every year is easy as an equal amount is charged as depreciation.
4. It is suitable for assets which require fewer repairs.

Straight-Line Method limitations

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

Straight-Line Method benefits

1. Useful for assets which require fewer repairs and maintenance.
2. Useful if an asset is used continuously.

Written Down Value Method

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

The rate of depreciation is calculated using the formulae:

Where,

R = depreciation rate

n = Assets useful life that can be expected

s = scrap value

c= cost of an asset

Written Down Value Method Advantages

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

Written Down Value Method Limitations

1. Determining the rate of depreciation is difficult.
2. The book value never reaches zero in this method, as depreciation cannot be fully written off.
3. Businesses may find it difficult to gather prices for the replacement of assets as most of the depreciation is charged in the early years, and that amount is used in the business.

Written Down Value Method Uses

1. Suitable for assets having long useful life.
2. Convenient for assets that require greater maintenance costs and repairs in the later years.

Difference between Straight Line Method and Written Down Value Method

Basis of Comparison	Straight Line Method	Written Down Value Method
How it is calculated	The actual cost of an asset is taken as the basis for calculating Depreciation	Reducing the balance is the basis of calculating depreciation. Reducing balance is also known as book value
How depreciation is charged	A fixed amount is charged every year till the effective life of the asset	Depreciation is charged based on the written down value of the asset every year till the effective life of the asset
Value of Asset	It becomes zero at the end of the effective life of the asset and is written off	It never becomes zero and hence not completely written off.
Asset Suitability	Assets such as buildings and lands which require less repair and have fewer chances of becoming obsolete are suitable for this method	Assets requiring frequent repair like machinery, plant and car.
Impact of Depreciation and repairs on P & L account	Increases every year	Remains constant every year

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

Here are some methods by which depreciation can be recorded:

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

Journal entries for depreciation are shown below:

Depreciation charged to the asset account

Depreciation A/c		Dr.
	To Assets A/c
(Depreciation charged to Assets Account)

Closing of Depreciation Account

Profit and Loss A/c		Dr.
	To Depreciation A/c
(Depreciation transferred to P& L Account)

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

The following journal entries are made:

Charging (crediting) Depreciation to Provision for depreciation account

Depreciation A/c		Dr.
	To Provision for Depreciation A/c
(Charged Depreciation)

For charging depreciation to P & L account

Profit and Loss A/c		Dr.
	To Depreciation A/c
(Depreciation charged to Profit and Loss Account)

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

Provision for Depreciation A/c		Dr.
	To Asset A/c
(Accumulated depreciation gets debited to Assets Account)

4. Explain determinants of the amount of depreciation.

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

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

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

Depreciation (p.a.)	=	(Original cost – Scrap Value)
		Estimated Life of Asset (years)
	=	(40,000 – 5,000)
		10
	=3,500/annum

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

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

Reserves are classified into two types:

1. Revenue Reserve: Revenue reserve is created from revenue profit. It can be of two types: a) General and b) Specific Purpose

1. General Reserve: The purpose for which reserves are created is not specified. Such reserves are called General Reserves. These reserves can be utilized for the growth of a business.
2. Specific Reserve: A specific reserve is created with the intent of utilizing for a specific purpose in the business.

Following are some examples:

1. Dividend Equalisation Reserve
2. Debenture Redemption Reserve

1. Capital Reserve: Reserve which is created out of capital profit, such as the sale of some fixed asset, is known as a capital reserve. Here are some examples of capital reserves:

1. Premium on issue of debentures
2. Premium on issue of shares

iii. Profit on sale of fixed assets

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

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

1. Provision for depreciation
2. Provision for taxation
3. Provision for bad and doubtful debts
4. Provision for discount on debtors

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

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

Accounting treatment for provision for doubtful debts is:

Profit and Loss A/c		Dr.
	To Provision for Doubtful Debts
(Provision for doubtful debts made)

Numerical Answers for Depreciation Provisions and Reserves Class 11 NCERT Solutions Chapter 7

 

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

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

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

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

Books of Bajrang Marbles
(a)
Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2010				2011
Apr.01	Bank		2,00,000	Mar.31	Depreciation		18,000
					Balance c/d		1,82,000
			2,00,000				2,00,000
2011				2012
Apr.01	Balance b/d		1,82,000	Mar.31	Depreciation		18,000
				Mar.31	Balance c/d		1,64,000
			1,82,000				1,82,000
2012				2013
Apr.01	Balance b/d		1,64,000	Mar.31	Depreciation		18,000
				Mar.31	Balance c/d		1,46,000
			1,64,000				1,64,000
2013				2014
Apr.01	Balance b/d		1,46,000	Mar.31	Depreciation		18,000
				Mar.31	Balance c/d		1,28,000
			1,46,000				1,46,000

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

Working notes: Calculation of annual depreciation

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

Depreciation (p.a.)	=	(Original cost – Scrap Value )
		Estimated Life of Asset (years)
	=	(1,80,000 + 10,000 + 10,000 – 20,000)
		10
	=	₹ 18,000/annum

The depreciation account is calculated as:

Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2011				2011
Mar.31	Machinery		18,000	Mar.31	Profit and Loss		18,000
			18,000				18,000
2012				2012
Mar.31	Machinery		18,000	Mar.31	Profit and Loss		18,000
			18,000				18,000
2013				2013
Mar.31	Machinery		18,000	Mar.31	Profit and Loss		18,000
			18,000				18,000
2014				2014
Mar.31	Machinery		18,000	Mar.31	Profit and Loss		18,000
			18,000				18,000

(b)

Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount  ₹	Date	Particulars	J.F.	Amount ₹
2010				2011
Apr.01	Bank		2,00,000	Mar.31	Balance c/d		2,00,000
			2,00,000				2,00,000
2011				2012
Apr.01	Balance b/d		2,00,000	Mar.31	Balance c/d		2,00,000
			2,00,000				2,00,000
2012				2013
Apr.01	Balance b/d		2,00,000	Mar.31	Balance c/d		2,00,000
			2,00,000				2,00,000
2013				2014
Apr.01	Balance b/d		2,00,000	Mar.31	Balance c/d		2,00,000
			2,00,000				2,00,000

 

Provision for Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2011				2011
Mar.31	Balance c/d		18,000	Mar.31	Depreciation		18,000
			18,000				18,000
				2011
				Apr.01	Balance b/d		18,000
2012				2012
Mar.31	Balance c/d		18,000	Mar.31	Depreciation		18,000
			36,000				36,000
				2012
				Apr.01	Balance b/d		36,000
2013				2013
Mar.31	Balance c/d		54,000	Mar.31	Depreciation		18,000
			54,000				54,000
				2003
				Apr.01	Balance b/d		54,000
2014				2014
Mar.31	Balance c/d		72,000	Mar.31	Depreciation		18,000
			72,000				72,000

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

Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2011				2011
Mar.31	Provision for Depreciation		18,000	Mar.31	Profit and Loss		18,000
			18,000				18,000
2012				2012
Mar.31	Provision for Depreciation		18,000	Mar.31	Profit and Loss		18,000
			18,000				18,000
2013				2013
Mar.31	Provision for Depreciation		18,000	Mar.31	Profit and Loss		18,000
			18,000				18,000
2014				2014
Mar.31	Provision for Depreciation		18,000	Mar.31	Profit and Loss		18,000
			18,000				18,000

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

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

The machine account and depreciation account are as follows:

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

= ₹ 1, 20,000

 

Books of Ashok Ltd.
Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2010				2010
Jul.01	Bank		1,20,000	Dec.31	Depreciation		4,500
				Dec.31	Balance c/d		1,15,500
			1,20,000				1,20,000
2011				2011
Jan.01	Balance b/d		1,15,500	Dec.31	Depreciation		9,000
				Dec.31	Balance c/d		1,06,500
			1,15,000				1,15,500
2012				2012
Jan.01	Balance b/d		1,06,500	Dec.31	Depreciation		9,000
				Dec.31	Balance c/d		97,500
			1,06,500				1,06,500
2013
Jan.01	Balance b/d		97,500

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

Working notes: Calculation of annual depreciation

Depreciation (p.a.)	=	(Original cost – Scrap Value )
		Estimated Life of Asset (years)

 

Depreciation	=	(1,08,000 + 12,000 – 12,000)
		12
	=	₹ 9,000

 

Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2010				2010
Dec.31	Machinery		4,500	Dec.31	Profit and Loss		4,500
			4,500				4,500
2011				2011
Dec.31	Machinery		9,000	Dec.31	Profit and Loss		9,000
			9,000				9,000
2012				2012
Dec.31	Machinery		9,000	Dec.31	Profit and Loss		9,000
			9,000				9,000

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

Machine account and provision for depreciation account are as follows:

Books of Reliance Ltd.
Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2011				2011
Oct.01	Bank		84,000
				Dec.31	Balance c/d		84,000
			84,000				84,000
2012				2012
Jan.01	Balance b/d		84,000
				Dec.31	Balance c/d		84,000
			84,000				84,000
2013				2013
Jan.01	Balance b/d		84,000
				Dec.31	Balance c/d		84,000
			84,000				84,000

 

Provision for Depreciation  Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
				2011
				Dec.31	Depreciation		1,316
2011
Dec.31	Balance c/d		1,316
			1,316				1,316
				2012
				Jan.01	Balance b/d		1,316
2012				Dec.31	Depreciation		5,267
Dec.31	Balance c/d		6,583
			6,583				6,583
				2013
				Jan.01	Balance b/d		6,583
2013				Dec.31	Depreciation		5,267
Dec.31	Balance c/d		11,850
			11,850				11,850
				2014
				Jan.01	Balance b/d		11,850

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

Working Note:

Calculation of annual depreciation

Depreciation (p.a.)	=	(Original cost – Scrap Value )
		Estimated Life of Asset (years)

 

Depreciation (p.a.)	=	(56,000 + 28,000 – 6,000 + 1,000)
		15 years
	=	₹ 5,267

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

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

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

The machinery account and depreciation account are as follows:

Books of Berlia Ltd. (a)
Machinery Account (Using Original Cost Method)
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2015				2015
Jul.01	Bank (i)		85,000	Dec.31	Depreciation		4,250
	(5,600 + 24,000 + 5,000)			Dec.31	Balance c/d		80,750
			85,000				85,000
2016				2016
Jan.01	Balance b/d (i)		80,750	Dec.31	Depreciation
Sep.01	Bank (ii)		2,60,000		(i) 8,500, (ii) 8,667		17,167
	(2,50,000 + 10,000)			Dec.31	Balance c/d		3,23,583
					(i) 72,250, (ii) 2,51,333
			3,40,750				3,40,750
2017				2017
Jan.01	Balance b/d		3,23,583	Dec.31	Depreciation
	(i) 72,250, (ii) 2,51,333				(i) 8,500, (ii) 26,000		34,500
				Dec.31	Balance c/d
					(i) 63,750, (ii) 2,25,333		2,89,083
			3,23,583				3,23,583
2018	Balance b/d			2018
Jan.01	(i) 63,750, (ii) 2,25,333		2,89,083	Dec.31	Depreciation
					(i) 8,500, (ii) 26,000		34,500
				Dec.31	Balance c/d
					(i) 55,250, (ii) 1,99,333		2,54,583
			2,89,083				2,89,083

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

Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2015				2015
Dec.31	Machinery		4,250	Dec.31	Profit and Loss		4,250
			4,250				4,250
2016				2016
Dec.31	Machinery			Dec.31	Profit and Loss		17,167
	(i) 8,500 (ii) 8,667		17,167
			17,167				17,167
2017				2017
Dec.31	Machinery			Dec.31	Profit and Loss		34,500
	(i) 8,500 (ii) 26,000		34,500
			34,500				34,500
2018				2018
Dec.31	Machinery		34,500	Dec.31	Profit and Loss		34,500
	(i) 8,500 (ii) 26,000		34,500				34,500

Working notes: Calculation of depreciation per annum

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

	= (56,000 + 24,000 + 5,000) ×	10
		100
	= ₹ 8,500 pa

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

	= (2,50,000 + 10,000)  ×	10
		100
	= ₹ 26,000 pa

(b)

Machinery Account (Written Down Value method)
Dr.							Cr.
Date	Particulars	J.F.	Amount  ₹	Date	Particulars	J.F.	Amount  ₹
2015				2015
Jul.01	Bank (i)		85,000	Dec.31	Depreciation		4,250
	(5,600 + 24,000 + 5,000)			Dec.31	Balance c/d		80,750
			85,000				85,000
2016				2016
Jan.01	Balance b/d (i)		80,750	Dec.31	Depreciation
Sep.01	Bank (ii)		2,60,000		(i) 8,075, (ii) 8,667		16,742
	(2,50,000 + 10,000)			Dec.31	Balance c/d
					(i) 72,675, (ii) 2,51,333		3,24,008
			3,40,750				3,40,750
2017				2017
Jan.01	Balance b/d		3,24,008	Dec.31	Depreciation
	(i) 72,675, (ii) 2,51,333				(i) 7,268, (ii) 25,133		32,401
				Dec.31	Balance c/d
					(i) 65,407, (ii) 2,26,200		2,91,607
			3,24,008				3,24,008
2018	Balance b/d			2018
Jan.01	(i) 65,407, (ii) 2,26,200		2,91,607	Dec.31	Depreciation
					(i) 6,540, (ii) 22,620		29,160
				Dec.31	Balance c/d
					(i) 58,867, (ii) 2,03,580		2,62,447
			2,91,607				2,91,607

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

Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2015				2015
Dec.31	Machinery		4,250	Dec.31	Profit and Loss		4,250
			4,250				4,250
2016				2016
Dec.31	Machinery			Dec.31	Profit and Loss		16,742
	(i) 8,075, (ii) 8,667		16,742
			16,742				16,742
2017				2017
Dec.31	Machinery			Dec.31	Profit and Loss		32,401
	(i) 7,268, (ii) 25,133		32,401
			32,401				32,401
2018				2018
Dec.31	Machinery			Dec.31	Profit and Loss		29,160
	(i) 6,540, (ii) 22,620		29,160
			29,160				29,160

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

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

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

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

The machinery account and depreciation account are as follows:

(a)

Books of Ganga Ltd.
Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2014				2014
Jan.01	Bank (i)		6,00,000	Dec.31	Depreciation (i) 60,000 (ii) 12,333		72,333
	(5,50,000 + 50,000)			Dec.31	Balance c/d
Sep.01	Bank (ii)		3,70,000		(i) 5,40,000, (ii) 3,57,667		8,97,667
			9,70,000				9,70,000
2015				2015
Jan.01	Balance b/d			Dec.31	Depreciation
	(i) 5,40,000, (ii) 3,57,667		8,97,667		(i) 60,000, (ii) 37,000,
May.01	Bank (iii)		8,40,000		(iii) 56,000		1,53,000
				Dec.31	Balance c/d
					(i) 4,80,000 (ii) 3,20,667,
					(iii) 7,84,000		15,84,667
			17,37,667				17,37,667
2016				2016
Jan.01	Balance b/d			Dec.31	Depreciation
	(i) 4,80,000, (ii) 3,20,667				(i) 60,000, (ii) 37,000,
	(iii) 7,84,000		15,84,667	Dec.31	(iii) 84,000		1,81,000
					Balance c/d
					(i) 4,20,000, (ii) 2,83,667,
					(iii) 7,00,000		14,03,667
			15,84,667				15,84,667
2017				2017
Jan.01	Balance b/d			Dec.31	Depreciation
	(i) 4,20,000, (ii) 2,83,667,				(i) 60,000, (ii) 37,000,
	(iii) 7,00,000		14,03,667		(iii) 84,000		1,81,000
				Dec.31	Balance c/d
					(i) 3,60,000, (ii) 2,46,667,
					(iii) 6,16,000		12,22,667
			14,03,667				14,03,667

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

Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2014				2014
Dec.31	Machinery		72,333	Dec.31	Profit and Loss		72,333
			72,333				72,333
2015				2015
Dec.31	Machinery		1,53,000	Dec.31	Profit and Loss		1,53,000
			1,53,000				1,53,000
2016				2016
Dec.31	Machinery		1,81,000	Dec.31	Profit and Loss		1,81,000
			1,81,000				1,81,000
2017				2017
Dec.31	Machinery		1,81,000	Dec.31	Profit and Loss		1,81,000
			1,81,000				1,81,000

(b)

Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2014				2014
Jan.01	Bank (i)		6,00,000
	(5,50,000 + 50,000)			Dec.31	Balance c/d
Sep.01	Bank (ii)		3,70,000				9,70,000
			9,70,000				9,70,000
2015				2015
Jan.01	Balance b/d
	(i) 6,00,000 (ii) 3,70,000		9,70,000
May.01	Bank (iii)		8,40,000	Dec.31	Balance c/d		18,10,000
			18,10,000				18,10,000
2016				2016
Jan.01	Balance b/d			Dec.31	Balance c/d		18,10,000
	(i) 6,00,000 (ii) 3,70,000
	(iii) 8,40,000		18,10,000
			18,10,000				18,10,000
2017				2017
Jan.01	Balance b/d			Dec.31	Balance c/d		18,10,000
	(i) 6,00,000 (ii) 3,70,000
	(iii) 8,40,000		18,10,000
			18,10,000				18,10,000

 

Provision for Depreciation  Account
Dr.							Cr.
Date	Particulars	J.F.	Amount  ₹	Date	Particulars	J.F.	Amount  ₹
2014				2014
Dec.31	Balance c/d		72,333	Dec.31	Depreciation		72,333
			72,333				72,333
				2015
2015				Jan.01	Balance b/d		72,333
Dec.31	Balance c/d		2,25,333	Dec.31	Depreciation		1,53,000
			2,25,333				2,25,333
				2016
2016				Jan.01	Balance b/d		2,25,333
Dec.31	Balance c/d		4,06,333	Dec.31	Depreciation		1,81,000
			4,06,333				4,06,333
				2017
2017				Jan.01	Balance b/d		4,06,333
Dec.31	Balance c/d		5,87,333	Dec.31	Depreciation		1,81,000
			5,87,333				5,87,333

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

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

The furniture account and accumulated depreciation account are as follows:

Books of Azad Ltd.
Furniture Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount  ₹
2014				2015
Oct.01	Bank (i)		4,50,000
2015				Mar.31	Balance c/d		7,50,000
Mar.01	Bank (ii)		3,00,000
			7,50,000				7,50,000
2015				2016
Apr.01	Balance b/d
	(i) 4,50,000, (ii) 3,00,000		7,50,000	Mar.31	Balance c/d		7,50,000
			7,50,000				7,50,000
2016				2016
Apr.01	Balance b/d		7,50,000	July 01	Furniture Disposal		4,50,000
	(i) 4,50,000, (ii) 3,50,000			2005
				Mar.31	Balance c/d		3,00,000
			7,50,000				7,50,000

 

Accumulated Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount  ₹	Date	Particulars	J.F.	Amount  ₹
2015				2015
Mar.31	Balance c/d		37,500	Mar.31	Depreciation
					(i) 33,750, (ii) 3,750		37,500
			37,500				37,500
2016				2015
Mar.31	Balance c/d		1,44,376	Apr.01	Balance b/d		37,500
				2016
				Mar.31	Depreciation
					(i) 62,438, (ii) 44,378		1,06,876
			1,44,376				1,44,376
2016				2016
July.01	Furniture Disposal		1,09,456	Apr.01	Balance b/d		1,44,376
2017				July.01	Depreciation (i)		13,268
Mar.31	Balance c/d		85,960	2017
				Mar.31	Depreciation (ii)		37,772
			1,95,416				1,95,416

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

Furniture Disposal Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount  ₹
2016				2016
Jul.01	Furniture		4,50,000	Jul.01	Accumulated Dep.		1,09,456
				Jul.01	Bank		2,25,000
				Jul.01	Profit and Loss (Loss)		1,15,544
			4,50,000				4,50,000

Working Note:

Furniture (i)

Years	Opening Balance		Depreciation			Closing Balance
2014 – 2015	4,50,000	–	33,750		=	4,16,250
2015 – 2016	4,16,250	–	62,438		=	3,53,812
2016	3,53,812	–	13,268	(3 months)	=	3,40,544
			1,09,456
Balance on July 01, 2016	3,40,544
Less: Sale on July 01, 2016	(2,25,000)
Loss on sale of furniture	1,15,544

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

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

 Machinery account and Machinery disposal account are prepared below:

Books of M/s. Lokesh Fabrics
Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2011				2012
Apr.01	Bank (i)		1,00,000	Mar.31	Depreciation		15,000
				Mar.31	Balance c/d		85,000
			1,00,000				1,00,000
2012				2013
Apr.01	Balance b/d		85,000	Mar.31	Depreciation
July.01	Bank (ii)		2,50,000		(i) 15,000 + 28,125		43,125
				Mar.31	Balance c/d
					(i) 70,000, (ii) 2,21,875		2,91,875
			3,35,000				3,35,000
2013				2014
Apr.01	Balance b/d			Mar.31	Depreciation
	(i) 70,000, (ii) 2,21,875		2,91,875		(i) 15,000, (ii) 37,500		52,500
				Mar.31	Balance c/d
					(i) 55,000, (ii) 1,84,375		2,39,375
			2,91,875				2,91,875
2014				2015
Apr.01	Balance b/d			Mar.31	Depreciation
	(i) 5,500, (ii) 1,84,375		2,39,375		(i) 15,000, (ii) 37,500		52,500
				Mar.31	Balance c/d
					(i) 40,000, (ii) 1,46,875		1,86,875
			2,39,375				2,39,375
2015				2015
Apr.01	Balance b/d			Oct.01	Depreciation		7,500
	(i) 40,000, (ii) 1,46,875		1,86,875	Oct.01	Machinery Disposal		32,500
				2016
				Mar.31	Depreciation (ii)		37,500
				Mar.31	Balance c/d		1,09,375
			1,86,875				1,86,875

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

Machinery Disposal Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount  ₹
2015				2015
Oct.01	Machinery		32,500	Oct.01	Bank		25,000
				Oct.01	Profit and Loss		7,500
			32,500				32,500

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

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

₹

Machinery account on 15, 00,000

Provision for depreciation account 5, 50,000

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

Machinery account and provision for depreciation account are created below:

Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2015				2015
Jan.01	Balance b/d		15,00,000	Apr.01	Machinery Disposal		2,00,000
	(13,00,000 + 2,00,000)
Jul.01	Bank		6,00,000	Dec.31	Balance c/d		19,00,000
			21,00,000				21,00,000

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

Provision for Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount  ₹	Date	Particulars	J.F.	Amount  ₹
2015				2015
Apr.01	Machinery Disposal		1,30,000	Jan.01	Balance b/d		5,50,000
Apr.01	Balance c/d		7,50,000	Apr.01	Depreciation		10,000
				Dec.31	Depreciation
					(i) 2,60,000, (ii) 60,000		3,20,000
			8,80,000				8,80,000

Working Note for the solution:

Machine Sold on July 01, 2015

(i)		Years	Opening Balance				Depreciation		Closing Balance
	2012		2,00,000			–	40,000	=	1,60,000
	2013		1,60,000			–	40,000	=	1,20,000
	2014		1,20,000			–	40,000	=	80,000
	2015		80,000			–	10,000	=	70,000
			Accumulated Depreciation			=	1,30,000
Value on April 01, 2015			=		(70,000)
Less: Sale			=		75,000
Profit on sale of Machinery					5,000

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

Machinery Disposal Account
Dr.							Cr.
Date	Particulars	J.F.	Amount  ₹	Date	Particulars	J.F.	Amount ₹
2015				2015
Apr.01	Machinery		2,00,000	Apr.01	Provision for Depreciation		1,30,000
Apr.01	Profit and Loss (Profit)		5,000	Apr.01	Bank		75,000
			2,05,000				2,05,000

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

The computer account is created below:

Books of M/s Excel Computers
Computer Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount  ₹
2010				2011
Apr.01	Balance b/d (i)		50,000	Mar.31	Depreciation
Jul.01	Bank (ii)		2,50,000		(i) 12,000, (ii) 18,750,
2011					(iii) 750		31,500
Jan.01	Bank (iii)		30,000	Mar.31	Balance c/d
					(i) 38,000, (ii) 2,31,250,
					(iii) 29,250		2,98,500
			3,30,000				3,30,000
2011				2012
Apr.01	Balance b/d			Mar.31	Depreciation
	(i) 38,000, (ii) 2,31,250,				(i) 12,000 (ii) 25,000,
	(iii) 29,250		2,98,500		(iii) 3,000		40,000
				Mar.31	Balance c/d
					(i) 26,000 (ii) 2,06,250,
					(iii) 26,250		2,58,500
			2,98,500				2,98,500
2012				2013
Apr.01	Balance b/d			Mar.31	Depreciation
	(i) 26,000 (ii) 2,06,250,				(i) 12,000, (ii) 25,000,		40,000
	(iii) 26,250		2,58,500	Mar.31	(iii) 3,000
					Balance c/d
					(i) 14,000, (ii) 1,81,250,
					(iii) 23,250		2,18,500
			2,58,500				2,58,500
2013				2014
Apr.01	Balance b/d			Mar.31	Depreciation
	(i) 14,000, (ii) 1,81,250,				(i) 12,000, (ii) 25,000,		40,000
	(iii) 23,250		2,18,500		(iii) 3,000
				Mar.31	Balance c/d
					(i) 2,000, (ii) 1,56,250,
					(iii) 20,250		1,78,500
			2,18,500				2,18,500
2014				2014
Apr.01	Balance c/d			Apr.01	Bank (ii)		20,000
	(i) 2,000, (ii) 1,56,250,			Apr.01	Profit and Loss (Loss)		1,36,250
	(iii) 20,250		1,78,500	2015
Aug.01	Bank (iv)		80,000	Mar.31	Depreciation		10,333
					(i) 2,000, (iii) 3,000, (iv) 5,333
				Mar.31	Balance c/d
					(iii) 17,250, (iv) 74,667		91,917
			2,58,500				2,58,500

Here the closing balance is ₹. 91,917

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

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

Books of Carriage Transport Company
Truck Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2011				2011
Apr.01	Bank		10,00,000	Dec.31	Balance c/d		10,00,000
			10,00,000				10,00,000
2012				2012
Jan.01	Balance b/d		10,00,000	Dec.31	Balance c/d		10,00,000
			10,00,000				10,00,000
2013				2013
Jan.01	Balance b/d		10,00,000	Oct.01	Truck Disposal		2,00,000
Oct.01	Bank		1,20,000	Dec.31	Balance c/d		9,20,000
			11,20,000				11,20,000

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

Provision for Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2011				2011
Dec.31	Balance c/d		1,50,000	Dec.31	Depreciation		1,50,000
			1,50,000				1,50,000
2012				2012
Dec.31	Balance c/d		3,50,000	Jan.01	Balance c/d		1,50,000
				Dec.31	Depreciation		2,00,000
			3,50,000				3,50,000
2013				2013
Oct.01	Truck Disposal		1,00,000	Jan.01	Balance b/d		3,50,000
Oct.01	Balance c/d		4,46,000	Oct.01	Depreciation (9 Months)		30,000
				Dec.31	Depreciation
					(1,60,000 + 6,000)		1,66,000
			5,46,000				5,46,000

Working Note for the solution:

	Opening Balance					Depreciation		Closing Balance
Apr.01, 2011	2,00,000				–	30,000	=	1,70,000
Jan.01, 2012	1,70,000				–	40,000	=	1,30,000
Jan.01, 2013	1,30,000				–	30,000	=	1,00,000
	Accumulated Depreciation				=	1,00,000
Value on Oct.01, 2013		=	1,00,000
Less: Insurance Claim		=	70,000
Loss on Accident			30,000

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

Truck Disposal Account
Dr.							Cr.
Date	Particulars	J.F.	Amount  ₹	Date	Particulars	J.F.	Amount  ₹
2013				2013
Oct.01	Truck		2,00,000	Oct.01	Provision for Depreciation		1,00,000
				Oct.01	Insurance Co. (Insurance Claim)		70,000
				Oct.01	Profit and Loss (Loss)		30,000
			2,00,000				2,00,000

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

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

Books of Saraswati Ltd. Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2011				2011
Jan.01	Bank (i)		10,00,000
	(8,00,000 + 2,00,000)			Dec.31	Balance c/d		10,00,000
			10,00,000				10,00,000
2012				2012
Jan.01	Balance b/d		10,00,000	Dec.31	Balance c/d		25,00,000
May.01	Bank (ii)		15,00,000
			25,00,000				25,00,000
2013				2013
Jan.01	Balance b/d		25,00,000	Dec.31	Balance c/d		25,00,000
			25,00,000				25,00,000
2014				2014
Jan.01	Balance b/d		25,00,000	Oct.31	Machinery Disposal		2,00,000
Jul.01	Bank (ii)		12,00,000	Dec.31	Balance c/d
					(i) 8,00,000 (ii) 15,00,000
					(iii) 12,00,000		35,00,000
			37,00,000				37,00,000
2015				2015
Jan.01	Balance c/d		35,00,000	Dec.31	Balance c/d		35,00,000
			35,00,000				35,00,000

 

Provision for Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount  ₹
2011				2011
Dec.31	Balance c/d		1,00,000
				Dec.31	Depreciation (i)		1,00,000
			1,00,000				1,00,000
2012				2012
Dec.31	Balance c/d		3,00,000	Jan.01	Balance c/d		1,00,000
				Dec.31	Depreciation
					(i) 1,00,000 (ii) 1,00,000		2,00,000
					(8 months)
			3,00,000				3,00,000
2013				2013
Dec.31	Balance b/d		5,50,000	Jan.01	Balance c/d		3,00,000
				Dec.31	Depreciation		2,50,000
			5,50,000		(i) 1,00,000 (ii) 1,50,000,		5,50,000
2014				2014
Oct.31	Machinery Disposal		76,667	Jan.01	Balance b/d		5,50,000
Dec.31	Balance c/d		7,80,000	Oct.31	Depreciation		16,667
				Dec.31	Depreciation
					(i) 80,000, (ii) 1,50,000,
					(iii) 60,000		2,90,000
			8,56,667				8,56,667
2015				2015
Dec.31	Balance c/d		11,30,000	Jan.01	Balance c/d		7,80,000
				Dec.31	Depreciation
					(i) 80,000, (ii) 1,50,000,
					(iii) 1,20,000		3,50,000
			11,30,000				11,30,000

 

Machinery Disposal Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2014				2014
Oct.31	Machinery		2,00,000	Oct.31	Depreciation		76,667
				Oct.31	Bank		75,000
				Oct.31	Profit and Loss (Loss)		48,333
			2,00,000				2,00,000

Working Note for solution:

	Opening Balance		Depreciation		Closing Balance
2011	2,00,000	–	20,000	=	1,80,000
2012	1,80,000	–	20,000	=	1,60,000
2013	1,60,000	–	20,000	=	1,40,000
2014	1,40,000	–	16,667	=	1,23,333
	Accumulated Depreciation		76,667

 

Value on Oct. 01, 2014	1,23,333
Sale on Oct. 01, 2014	– 75,000
Loss on sale	₹ 48,333

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

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

The journal entry is prepared as follows:

Books of Ashwani Journal
Date			Particulars		L.F.	Debit Amount ₹	Credit Amount ₹
2011
Jul.01	Machinery A/c			Dr.		2,25,000
		To Creditors for Machinery A/c					2,00,000
		To Bank A/c					25,000
	(Machinery bought on credit and ₹ 25,000 paid for installation through cheque)
2011
Dec.31	Depreciation A/c			Dr.		20,500
		To Machinery A/c					20,500
	(Depreciation charged on Machinery)
2011
Dec.31	Profit and Loss A/c			Dr.		20,500
		To Depreciation A/c					20,500
	(Depreciation transferred to Profit and Loss Account)
2012
Dec.31	Depreciation A/c			Dr.		41,000
		To Machinery A/c					41,000
	(Depreciation charged on Machinery)
2012
Dec.31	Profit and Loss A/c			Dr.		41,000
		To Depreciation A/c					41,000
	(Depreciation transferred to Profit and Loss Account)
2013
Dec.31	Depreciation A/c			Dr.		41,000
		To Machinery A/c					41,000
	(Depreciation charged on Machinery)
2013
Dec.31	Profit and Loss A/c			Dr.		41,000
		To Depreciation A/c					41,000
	(Depreciation transferred to Profit and Loss Account)

 

Ledger Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount  ₹	Date	Particulars	J.F.	Amount  ₹
2011				2011
Jul.01	Creditors for Machinery		2,00,000	Dec.31	Depreciation		20,500
Jul.01	Bank		25,000	Dec.31	Balance c/d		2,04,500
			2,25,000				2,25,000
2012				2012
Jan.01	Balance b/d		2,04,500	Dec.31	Depreciation		41,000
				Dec.31	Balance c/d		1,63,500
			2,04,500				2,04,500
2013				2013
Jan.01	Balance c/d		1,63,500	Dec.31	Depreciation		41,000
				Dec.31	Balance c/d		1,22,500
			1,63,500				1,63,500

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

Working Note for solution:

Calculation of annual depreciation is done below

Depreciation (p.a.)	=	(2,00,000 + 25,000 – 20,000)
		5
	=	₹ 41,000/annum

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

The truck account is prepared below:

Books of Laxmi Transport Ltd. Truck Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2010				2011
Oct.01	Bank		8,00,000	Mar.31	Depreciation (6 months)		60,000
				Mar.31	Balance c/d		7,40,000
			8,00,000				8,00,000
2011				2012
Apr.01	Balance b/d		7,40,000	Mar.31	Depreciation		1,11,000
				Mar.31	Balance c/d		6,29,000
			7,40,000				7,40,000
2012				2013
Apr.01	Balance b/d		6,29,000	Mar.31	Depreciation		94,350
				Mar.31	Balance c/d		5,34,650
			6,29,000				6,29,000
2013				2013
Apr.01	Balance b/d		5,34,650	Dec.31	Depreciation (9 months)		60,148
Dec.31	Profit and Loss (Profit)		25,498	Dec.31	Bank		5,00,000
			5,60,148				5,60,148

Working Note for solution:

For 2010-2011

8, 00,000 x x = 60,000

For 2011- 2012

8, 00,000 – 60,000= 7, 40,000

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

For 2012-2013

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

6, 29,000 x = 94,350

For 2013- 2014

6, 29,000 – 94,350 = 5, 34,650

5, 34,650 x x = 60,148

Book Value = 5, 34,650 – 60,148

= 4, 74,502

Profit on sale of truck = Sale Price – Book Value

= 5, 00,000 – 4, 74,502 = 25,498

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

The machinery account is created below:

Books of Kapil Ltd.  Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2011				2011
Jul.01	Bank (i)		3,50,000	Dec.31	Depreciation (6 months)		17,500
				Dec.31	Balance c/d		3,32,500
			3,50,000				3,50,000
2012				2012
Jan.01	Balance c/d		3,32,500	Dec.31	Depreciation
Apr.01	Bank (ii)		1,50,000		(i) 35,000 (ii) 11,250 (9 months),
Oct.01	Bank (iii)		1,00,000		(iii) 2,500 (3 months)		48,750
				Dec.31	Balance c/d
					(i) 2,97,500, (ii) 1,38,750,
					(iii) 97,500		5,33,750
			5,82,500				5,82,500
2013				2013
Jan.01	(i) 2,97,500, (ii) 1,38,750,			Jan.01	Bank (i)		1,00,000
	(iii) 97,500		5,33,750	Jan.01	Profit and Loss (Loss)		1,97,500
				Dec.31	Depreciation
					(ii) 15,000 (iii) 10,000		25,000
				Dec.31	Balance c/d
					(ii) 1,23,750, (iii) 87,500		2,11,250
			5,33,750				4,33,750
2014				2014
Jan.01	Balance c/d		2,11,250	Dec.31	Depreciation
	(ii) 1,23,750, (iii) 87,500			Dec.31	(ii) 15,000, (iii) 10,000		25,000
					Balance c/d
					(ii) 1,08,750, (iii) 77,500		1,86,250
			2,11,250				2,11,250
2015
Jan.01	Balance b/d		1,86,250

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

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

The bus account is prepared below:

Books of Satkar Transport Ltd. Bus Account
Dr.							Cr.
Date	Particulars	J.F.	Amount  ₹	Date	Particulars	J.F.	Amount  ₹
2011				2011
Jan.01	Bank		30,00,000	Dec.31	Depreciation		4,50,000
				Dec.31	Balance c/d		25,50,000
			30,00,000				30,00,000
2012				2012
Jan.01	Balance b/d		25,50,000	Dec.31	Depreciation		3,82,500
				Dec.31	Balance c/d		21,67,500
			25,50,000				25,50,000
2013				2013
Jan.01	Balance b/d		21,67,500	July.01	Depreciation (6 months)		54,187
July.01	Profit and Loss (Profit)		31,687	July.01	Insurance Co. (Insurance claim)		7,00,000
				Dec.31	Depreciation		2,16,750
				Dec.31	Balance c/d		12,28,250
			21,99,187				21,99,187
2014				2014
Jan.01	Balance c/d		12,28,250	Dec.31	Depreciation		1,84,237
				Dec.31	Balance c/d		10,44,013
			12,28,250				12,28,250

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

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

The truck account is prepared below:

Books of Juneja Transport Company  Truck Account
Dr.							Cr.
Date	Particulars	J.F.	Amount  ₹	Date	Particulars	J.F.	Amount  ₹
2011				2012
Oct.01	Bank		20,00,000	Mar.31	Depreciation		1,00,000
				Mar.31	Balance c/d		19,00,000
			20,00,000				20,00,000
2012				2013
Apr.01	Balance b/d		19,00,000	Mar.31	Depreciation		1,90,000
				Mar.31	Balance c/d		17,10,000
			19,00,000				19,00,000
2013				2013
Apr.01	Balance b/d		17,10,000	Jul.01	Depreciation (3 Month on one Truck)		21,375
				Jul.01	Bank (Insurance Claim)		6,00,000
2014				Jul.01	Profit and Loss (loss)		2,33,625
Jan.31	Bank		12,00,000
				Dec.31	Depreciation (9 Month on II Truck)		64,125
				Dec.31	Bank		1,50,000
				Dec.31	Profit and Loss (Loss)		6,40,875
				2014
				Mar.31	Depreciation (2 Months)		20,000
				Mar.31	Balance c/d		11,80,000
			29,10,000				29,10,000

Working Note:

For 1st Truck

	Opening Balance	–	Depreciation	=	Closing Balance
Oct.01, 2011	10,00,000	–	50,000 (6 Months)	=	9,50,000
Apr.01, 2012	9,50,000	–	95,000	=	8,55,000
Apr.01, 2013	8,55,000	–	21,375 (3 Months)	=	8,33,625

 

Value on July 01, 2013	=	8,33,625
Insurance Claim	=	–  6,00,000
Loss on 1st Truck	=	₹ 2,33,625

For 2nd Truck

	Opening Balance	–	Depreciation	=	Closing Balance
Oct.01, 2012	10,00,000	–	50,000 (6 Months)	=	9,50,000
Apr.01, 2012	9,50,000	–	95,000	=	8,55,000
Apr.01, 2013	8,55,000	–	64,125 (9 Months)	=	7,90,875

 

Value on Dec.31, 2013	=	7,90,875
Sale of Truck	=	–  1,50,000
Loss on 2nd Truck	=	₹ 6,40,875

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

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

The cranes account is created below:

Cranes Account
Dr.											Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars					J.F.	Amount ₹
2017				2017
Apr.01	Machinery (35,00,000 + 5,00,000)		40,00,000	Oct.01	Depreciation						25,000
Oct.01	Profit and Loss (Profit)		47,500	Oct.01	Bank						5,22,500
Oct.01	Bank		9,00,000	Dec.31	Depreciation
					35,00,000 ×	10	×	9	= 2,62,500
						100		12
					9,00,000 ×	10	×	6	= 22,500		2,85,000
						100		12
				Dec.31	Balance c/d
											41,15,000
			49,47,500								49,47,500

Working Note:

Original cost of Crane 1 = 5, 00,000

Accumulated Depreciation = Depreciation in 2011 – 2012

= 25,000

Book Value as on Oct 01, 2011

= Original Cost – Depreciation till Oct 01, 2011

= 5, 00,000 – 25,000

= 4, 75,000

Selling Price

= Book Value + 10% of Book Value

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

= 4, 75,000 + 47,500

= 5, 22,500

Profit on crane 1

= Sale Price – Book Value

= 5, 22,500 – 4, 75,000

= 47,500

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

The machinery account is prepared below:

Books of Shri Krishna Manufacturing Company Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2014				2014
Jul.01	Bank		7,50,000	Dec.31	Depreciation		56,250
				Dec.31	Balance c/d		6,93,750
			7,50,000				7,50,000
2015				2015
Jan.01	Balance b/d		6,93,750	Dec.31	Depreciation		1,04,063
				Dec.31	Balance c/d		5,89,687
			6,93,750				6,93,750
2016				2016
Jan.01	Balance b/d		5,89,687	Oct.01	Depreciation (9 months		6,634
					for one machine)
Oct.01	Bank		1,25,000	Oct.01	Insurance Co.		45,000
				Oct.01	Profit and Loss (Loss)		7,335
				Dec.31	Depreciation
					(i) 79,608, (ii) 4,688		84,296
				Dec.31	Balance c/d
					(i) 4,51,110, (ii) 1,20,312		5,71,422
			7,14,687				7,14,687
2017				2017
Jan.01	Balance b/d			Dec.31	Depreciation
	(i) 4,51,110, (ii) 1,20,312		5,71,422		(i) 67,667, (ii) 18,047		85,714
				Dec.31	Balance c/d
					(i) 3,83,443, (ii) 1,02,265		4,85,708
			5,71,422				5,71,422

 

Working Note:

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

	Opening Balance	–	Depreciation	=	Closing Balance
Jul.01, 2014	75,000	–	5,625 (6 months)	=	69,375
Jan.01, 2015	69,375	–	10,406	=	58,969
Jan.01, 2016	58,969	–	6,634 (9 months)	=	52,335

 

Value on Oct.01, 2016		52,335
Insurance Claim		– 45,000
Loss		₹ 7,335

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

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

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

The machinery account is prepared as follows:

Machinery Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2016				2016
Jan.01	Balance b/d (i) (10,83,750 + 3,61,250)		14,45,000	Mar.01	Depreciation (1/4 Machine for 2 Months)		9,031
Sep.01	Bank (ii)		15,00,000	Mar.01	Bank		40,000
				Mar.01	Profit and Loss		3,12,219
				Dec.31	Depreciation (i)
					(i) 1,62,563 (3/4th of  machine), (ii) 75,000		2,37,563
				Dec.31	Balance c/d
					(i) 9,21,187, (ii) 14,25,000		23,46,187
			29,45,000				29,45,000
2017				2017
Jan.01	Balance b/d			Dec.31	Depreciation
	(i) 9,21,187, (ii) 14,25,000		23,46,187	Dec.31	(i) 1,38,177, (ii) 2,13,750		3,51,927
					Balance c/d
					(i) 7,83,009, (ii) 12,11,250		19,94,260
			23,46,187				23,46,187

 

Working Note:

 

Machine (i)

Years	January 01		Depreciation (15% p.a.)	=	Closing Balance
2014	20,00,000	–	3,00,000	=	17,00,000
2015	17,00,000	–	2,55,000	=	14,45,000
2016	14,45,000

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

Years	Opening Balance		Depreciation (15% p.a.)	=	Closing Balance
2014	5,00,000	–	75,000	=	4,25,000
2015	4,25,000	–	63,750	=	3,61,250
2016	3,61,250	–	9,031 (2 months)	=	3,52,219

 

Value on 1 Mar. 2016	=	3,52,219
Insurance Claim	=	40,000
Loss		₹ 3,12,219

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

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

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

Machinery account and provision for depreciation account are shown below:

Plant Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2015				2015
July.01	Bank		3,50,000	Dec.31	Balance c/d		3,50,000
			3,50,000				3,50,000
2016				2016
Jan.01	Balance b/d		3,50,000
				Dec.31	Balance c/d		3,50,000
			3,50,000				3,50,000
2017				2017
Jan.01	Balance b/d		3,50,000	Oct.01	Provision for Depreciation		1,18,125
Oct.01	Bank		4,00,000	Oct.01	Bank		1,50,000
				Oct.01	Profit and Loss		81,875
				Dec.31	Balance c/d		4,00,000
			7,50,000				7,50,000

 

Provision for Depreciation Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2015				2015
Dec.31	Balance c/d		26,250	Dec.31	Depreciation		26,250
			26,250				26,250
2016				2016
Dec.31	Balance b/d		78,750	Jan.01	Balance c/d		26,250
				Dec.31	Depreciation		52,500
			78,750				78,750
2017				2017
Oct.01	Plant		1,18,125	Jan.01	Balance b/d		78,750
Dec.31	Balance c/d		15,000	Oct.01	Depreciation (i) (9 months)		39,375
				Dec.31	Depreciation (ii) (3 months)		15,000
			1,33,125				1,33,125

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

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

Name of the Account	Debit Amount ₹	Credit Amount ₹
Sundry debtors	50,000
Bad debts	6,000
Provision for doubtful debts		4,000

 

Additional Information:

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

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

The solution is given below:

Date		Particulars		L.F.	Debit Amount ₹	Credit Amount ₹
	Bad Debt A/c		Dr.		2,000
		To Debtors A/c				2,000
	(Further bad debt charged from Debtors Account)
	Provision for Doubtful Debt A/c		Dr.		8,000
		To Bad Debt A/c				8,000
	(Amount of bad debt transferred to Provision for Doubtful Debt Account)
	Profit and Loss A/c		Dr.		7,840
		To Provision for Doubtful Debt A/c				7,840
	(Amount of Provision for Doubtful Debt transferred to Profit and Loss Account)

 

Bad Debt Account
Dr.							Cr.
Date	Particulars	J.F.	Amount  ₹	Date	Particulars	J.F.	Amount  ₹
2017				2017
Mar.31	Balance b/d		6,000	Mar.31	Provision for Doubtful
Mar.31	Debtors		2,000		Debt		8,000
			8,000				8,000

 

Debtors Account
Dr.							Cr.
Date	Particulars	J.F.	Amount  ₹	Date	Particulars	J.F.	Amount  ₹
2017				2017
Mar.31	Balance b/d		50,000	Mar.31	Bad Debt		2,000
				Mar.31	Balance c/d		48,000
			50,000				50,000

 

Provision for Doubtful Debts Account
Dr.							Cr.
Date	Particulars	J.F.	Amount  ₹	Date	Particulars	J.F.	Amount  ₹
2017				2017
31 Mar.	Bad Debt (6,000 + 2,000)		8,000	Apr.01	Balance b/d		4,000
31 Mar.	Balance c/d (8% of 50,000-2,000)		3,840	Mar.31	Profit and Loss		7,840
			11,840				11,840

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

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

Sundry Debtors	80,500
Bad Debts	1,000
Provision for Bad Debts	5,000

 

Additional Information

Bad Debts ₹ 500

Provision is to be maintained at 2% of Debtors

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

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

Bad Debt Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2017				2017
Mar.31	Balance b/d		1,000	Mar.31	Provision for Bad Debts		1,500
Mar.31	Debtors		500
			1,500				1,500

 

Provision for Bad debt Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2017				2017
Mar.31	Bad Debt		1,500	Mar.31	Balance b/d		5,000
Mar.31	Profit and Loss		1,900
Mar.31	Balance c/d (2% of 80,500-500)		1,600
			5,000				5,000

 

Profit and Loss Account
Dr.							Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount  ₹
				2017
				Mar.31	Provision for Bad Debts		1,900

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