Accounting for fixed assets

Motor Van Account (depreciation at 10% p.a. on original cost, fixed instalment method; depreciation is credited to the account)

Working notes:

• Van 1: Rs 6,00,000 bought 1-1-2018; annual depreciation Rs 60,000.
• Van 2: Rs 8,00,000 bought 1-7-2019; annual depreciation Rs 80,000.
• Van 3: Rs 10,00,000 bought 1-7-2020; annual depreciation Rs 1,00,000.
• Van 1 is sold on 1-7-2020 after 6 months' depreciation of Rs 30,000 for 2020. Its book value is $6{,}00{,}000 - 60{,}000 - 60{,}000 - 30{,}000 = \text{Rs } 4{,}50{,}000$. With a loss of Rs 50,000, sale proceeds are $4{,}50{,}000 - 50{,}000 = \text{Rs } 4{,}00{,}000$.

Year 2018

Year 2019

Year 2020

Check of closing balance: van 2 $= 8{,}00{,}000 - 40{,}000 - 80{,}000 - 80{,}000 = 6{,}80{,}000$ and van 3 $= 10{,}00{,}000 - 50{,}000 = 9{,}50{,}000$; total Rs 16,30,000.

Machinery Account (depreciation at 10% p.a. on original cost, straight-line method; depreciation is credited to the account)

Working notes:

• Machine 1: Rs 6,00,000 bought 1 Baisakh 2076; annual depreciation Rs 60,000.
• Machine 2: Rs 8,00,000 bought 1 Kartik 2077; annual depreciation Rs 80,000, so Rs 40,000 for the 6 months (Kartik to Chaitra) of 2077.
• Machine 3: Rs 10,00,000 bought 1 Kartik 2078; annual depreciation Rs 1,00,000, so Rs 50,000 for 6 months of 2078.
• Machine 1 is sold on 1 Kartik 2078 after 6 months' depreciation of Rs 30,000. Its book value is $6{,}00{,}000 - 60{,}000 - 60{,}000 - 30{,}000 = 4{,}50{,}000$. Loss on sale $= 4{,}50{,}000 - 4{,}00{,}000 = \text{Rs } 50{,}000$.

Year 2076

Year 2077

Year 2078

Check of closing balance: machine 2 $= 8{,}00{,}000 - 40{,}000 - 80{,}000 = 6{,}80{,}000$ and machine 3 $= 10{,}00{,}000 - 50{,}000 = 9{,}50{,}000$; total Rs 16,30,000.

Machinery Account (depreciation at 10% p.a. on original cost, straight-line method; depreciation is credited to the account)

Working notes:

• Machine 1: Rs 7,00,000 bought 1 Baisakh 2080; annual depreciation Rs 70,000.
• Machine 2: Rs 9,00,000 bought 1 Kartik 2081; annual depreciation Rs 90,000, so Rs 45,000 for the 6 months (Kartik to Chaitra) of 2081.
• Machine 3: Rs 12,00,000 bought 1 Kartik 2082; annual depreciation Rs 1,20,000, so Rs 60,000 for 6 months of 2082.
• Machine 1 is sold on 1 Kartik 2082 after 6 months' depreciation of Rs 35,000. Its book value is $7{,}00{,}000 - 70{,}000 - 70{,}000 - 35{,}000 = 5{,}25{,}000$. Loss on sale $= 5{,}25{,}000 - 4{,}50{,}000 = \text{Rs } 75{,}000$.

Year 2080

Year 2081

Year 2082

Check of closing balance: machine 2 $= 9{,}00{,}000 - 45{,}000 - 90{,}000 = 7{,}65{,}000$ and machine 3 $= 12{,}00{,}000 - 60{,}000 = 11{,}40{,}000$; total Rs 19,05,000.

Working notes

Straight-line (fixed instalment) depreciation is $10\%$ of original cost each year, and accounts close on Chaitra end.

• Machine A (Rs 8,00,000, bought 1 Baisakh 2073): depreciation Rs 80,000 a year. It is held for the whole of 2073 and 2074 until sold on 31 Chaitra 2074.
• Machine B (Rs 6,00,000, bought 1 Shrawan 2074): 9 months in 2074, so $6{,}00{,}000 \times 10\% \times \frac{9}{12} = Rs\ 45{,}000$. Full year (Rs 60,000) in 2075.
• Machine C (Rs 9,00,000, bought on the last day of 2074): no depreciation in 2074. Rs 90,000 in 2075.
• Sale of A: book value $= 8{,}00{,}000 - (80{,}000 + 80{,}000) = Rs\ 6{,}40{,}000$. Sold for Rs 6,50,000, so profit on sale = Rs 10,000.

Machinery Account, year 2073

Machinery Account, year 2074

Machinery Account, year 2075

Depreciation is the gradual and permanent decrease in the value of a fixed asset due to wear and tear, use, passage of time or obsolescence. It is charged as an expense to the profit and loss account in each accounting period over the useful life of the asset.

Machinery Account (depreciation at 10% p.a. on original cost, straight-line method; depreciation is credited to the account)

Working notes:

• Machine 1: Rs 5,00,000 bought 1-1-2023; annual depreciation Rs 50,000.
• Machine 2: Rs 2,00,000 bought 1-7-2024; annual depreciation Rs 20,000, so Rs 10,000 for the 6 months of 2024.

Year 2023

Year 2024

Year 2025

Check of closing balance: machine 1 $= 5{,}00{,}000 - 3 \times 50{,}000 = 3{,}50{,}000$ and machine 2 $= 2{,}00{,}000 - 10{,}000 - 20{,}000 = 1{,}70{,}000$; total Rs 5,20,000.

Machinery Account (depreciation at 10% p.a. on the diminishing balance method; depreciation is credited to the account)

Working notes:

• Machine 1: Rs 3,00,000 bought 1-1-2016. Depreciation: 2016 $= 30{,}000$ (book value 2,70,000); 2017 $= 27{,}000$ (book value 2,43,000).
• Machine 2: Rs 1,00,000 bought 1-7-2016. Depreciation: 2016 $= 1{,}00{,}000 \times 10\% \times \tfrac{6}{12} = 5{,}000$ (book value 95,000); 2017 $= 9{,}500$ (book value 85,500); 2018 $= 8{,}550$ (book value 76,950).
• Machine 1 is sold on 1-4-2018. Depreciation for 3 months of 2018 is $2{,}43{,}000 \times 10\% \times \tfrac{3}{12} = 6{,}075$, so the book value at sale is $2{,}43{,}000 - 6{,}075 = 2{,}36{,}925$.
• Loss on sale $= 2{,}36{,}925 - 1{,}80{,}000 = \text{Rs } 56{,}925$.

Year 2016

Year 2017

Year 2018

(b) Rs. 90,000

Annual depreciation = $\dfrac{\text{Cost} - \text{Scrap value}}{\text{Useful life}} = \dfrac{5{,}00{,}000 - 50{,}000}{5} = \dfrac{4{,}50{,}000}{5} =$ Rs. 90,000.

(a) Annual depreciation

Cost of machine = Purchase price + Installation + Carriage = Rs 4,00,000 + Rs 20,000 + Rs 10,000 = Rs 4,30,000

$\text{Annual depreciation} = \frac{\text{Cost} - \text{Scrap value}}{\text{Useful life}} = \frac{4{,}30{,}000 - 30{,}000}{5} = \frac{4{,}00{,}000}{5} = \text{Rs } 80{,}000$

(b) Machinery Account

The annual depreciation is Rs 80,000, and the balance of the machinery at the end of the second year is Rs 2,70,000.

Depreciation is 10% on the reducing balance, and the books close on 31 Ashadh. The furniture is used for three full years (2078-79, 2079-80, 2080-81) and sold on 1 Shrawan 2081, the day after the third year ends.

Working

Furniture Account

Furniture Disposal Account

Loss on sale = Book value − Sale price = Rs 1,45,800 − Rs 1,40,000 = Rs 5,800.

Cost of machine = Rs 6,00,000 + Rs 40,000 (installation) = Rs 6,40,000

(a) Annual depreciation

$\text{Annual depreciation} = \frac{\text{Cost} - \text{Scrap value}}{\text{Useful life}} = \frac{6{,}40{,}000 - 40{,}000}{4} = \frac{6{,}00{,}000}{4} = \text{Rs } 1{,}50{,}000$

(b) Machinery Account (three years)

(c) Machinery Disposal Account

Profit on sale = Sale proceeds − Book value = Rs 3,50,000 − Rs 1,90,000 = Rs 1,60,000.

(d) Journal entries (2081 Baishakh 1)