Question

Machine account shows balance of ₹ 60,000 in the books of Mehta Limited on 1-4-’12. This machine was purchased five years back. Till today, total depreciation written off on this machine was of ₹ 20,000. On 1-1-’14 second machine was purchased for ₹ 12,000.

Second machine was not found suitable and sold at 10% loss of book value on 31-12-’14. Every year company provides depreciation at 5 % under straight-line method.’
From the above information prepare machine account and depreciation account in the books of company up to 31-3-’15.

Answer 1

Here total depreciation of 5 years is given ₹ 20,000. Divide this depreciation amount with 5 years, annual depreciation will be received.
Annual depreciation under straight line method = 
= 20,000 / 5 = 4,000
∴ Annual depreciation for first machine ₹ 4,000 ……………………….. (1)

Cost price of llrst machine before 5 years
= Book value of machine on 1 -4 -‘12 + Total depreciation charged for 5 years = ₹ 60,000 + ₹ 20.000 = ₹ 80,000
Cost price of second machine on 1 – 1 -‘14 ₹ 12.000
Annual depreciation for second machine at 5 % =₹12,000 × 5 / 100 = ₹ 600

Selling price of second machine: