Question

On 1-4-’13 Hansa Limited has balance in machine account in its books of ₹ 36,000. This machine was purchased seven years back. This machine was sold at 30 % profit of its book value on 31-3-’14. Every year company charges depreciation at 10% under straight line method.

From the above information pass necessary journal entries and prepare machine account.

Answer 1

Under straight line method, the amount of depreciation is determined on the basis of cost price of asset. Therefore, first of all, cost price of machine (asset) will be ascertained.

As given, book value of machine at the end of seventh year is ₹ 36,000

∴ Cost price of machine = ₹ 1,20,000
∴ Annual depreciation at 10% of ₹ 1,20,000 = ₹ 12,000

Selling price of machine:

Journal Entries of Hansa Limited :