Depreciation - Class 10 Elements Of Book Keeping And Accountancy - Extra Questions

The straight Line method has the following advantages:
1. It is very simple, easy to understand, and apply. Simplicity makes it a popular method in practice;
2. Asset can be depreciated up to the net scrap value or zero value. Therefore, this method makes it possible to distribute the full depreciable cost over the useful life of the asset;
3. Every year, the same amount is charged as depreciation in the profit and loss accounts. This makes a comparison of profits for different years easy; 
4. This method is suitable for those assets whose useful life can be estimated accurately and where the use of the asset is consistent from year to year such as leasehold buildings.

The written down value method is most appropriate to overcome the burden of the profit and loss account because of high depreciation and repair costs over the years of the asset. 

Answer :
Dr                                        Bus Account                                   Cr

Date	Particulars	JF	Amt.(Rs)	Date	Particulars	JF	Amt.(Rs)
2001 Jan 1	To Bank A/c		$$30,00,000$$	2001 Dec 31	By Depreciation A/c (@$$15\%$$)		$$4,50,000$$
					By Balance c/d		$$25,50,000$$
			$$30,00,000$$				$$30,00,000$$
2002 Jan 1	To Balance b/d		$$25,50,000$$	2002 Dec 31	By Depreciation A/c (@ $$15\%$$ on $$25,50,000$$)		$$3,82,500$$
				Dec 31	By Balance c/d		$$21,67,500$$
			$$25,50,000$$				$$25,50,000$$

Date	Particulars	JF	Amt.(Rs)	Date	Particulars	JF	Amt.(Rs)
2003 Jan 1	To Balance b/d		$$21,67,000$$	2003 Jul 1	By Depreciation A/c (6 months)		$$54,188$$
Jul 1	To Profit & Loss A/c (Profit)		$$31,688$$	Jul 1	By Bank A/c (Insurance Claim)		$$7,00,000$$
				Dec 31	By Depreciation A/c		$$2,16,750$$
				Dec 31	By Balance c/d		$$12,28,250$$
			$$21,99,188$$				$$21,199,188$$
2004 Jan 1	To Balance b/d		$$12,28,250$$	2004 Dec 31	By Depreciation A/c (@$$15\%$$)		$$1,84,237$$
				Dec 31	By Balance c/d		$$10,44,013$$
			$$12,28,250$$				$$12,28,250$$

Working Note
Cost of Accidental Bus on 1 Jan, 2003 = $$\frac {21,67,500}{3}$$ = Rs. $$7,22,500$$
Dep on Accidental Bus on 1 Jul, 2003 = $$7,22,500$$ @ $$15\%$$ for 6 months = Rs $$54,188$$
Value of Bus as on 1 Jul, 2003 = $$7,22,500 - 54,188$$ = $$Rs.6,68,312$$
Profit on Accidental Bus = $$7,00,000 - 6,68,312 = Rs.31,688$$
Dep on Rest Two Busses = $$(21,67,500 - 7,22,500)$$ = Rs. $$14,45,000$$
Dep =$$14,45,000 @ 15\%$$ = Rs.$$2,16,750$$

Answer 
Dr                                   Truck Account                                 Cr

Date	Particulars	JF	Amt.(Rs)	Date	Particulars	JF	Amt.(Rs)
2001 Oct 1	To Bank A/c		$$20,00,000$$	2001 Mar 31	By Depreciation A/c (@ $$10\%$$ for 6 months)		$$1,00,000$$
				Mar 31	By Balance c/d		$$19,00,000$$
			$$20,00,000$$				$$20,00,000$$
2002 Apr	To Balance b/d		$$19,00,000$$	2003 Mar 31	By Depreciation A/c (@$$10\%$$ for a year)		$$1,90,000$$
				Mar 31	By Balance c/d		$$17,10,000$$
			$$19,00,000$$	Mar 31			$$19,00,000$$
2003 Apr 1	To Balance b/d		$$17,10,000$$	2003 Jul 1	By Depreciation A/c (for 3 months @ $$10\%$$ on $$8,55,000 )		$$21,375$$
2004 Jan 31	To Bank A/c (Purchase of New Truck)		$$12,00,000$$	Jul 1	By Bank A/c (Insurance Company)		$$6,00,000$$
				Jul 1	By Profit & Loss A/c (Loss)		$$2,33,625$$
				Dec 31	By Depreciation A/c (for 9 months @ $$10\%$$ on $$8,55,000$$)		$$64,125$$
				Dec 31	By Bank A/c		$$1,50,000$$
				Dec 31	By Profit & Loss A/c (Loss)		$$6,40,875$$
				2004 Mar 31	By Depreciation A/c (@$$10\%$$ for 2 months on $$12,00,000$$)		$$20,000$$
				Mar 31	By Balance c/d		$$11,80,000$$
			$$29,10,000$$				$$29,10,000$$

Working Note
Loss on Sale on 1st Truck
Value of Truck on 1st Apr, 2003 = $$17,10,000$$ divided by 2 = $$8,55,000$$
(-) Dep for 3 months @ $$10\%$$ on $$8,55,000$$        $$21,375$$
Value at the time of disposal                                            $$8,33,625$$
(-) Insurance Claim received                                            $$6,00,000$$
Loss on Settlement of 1st Truck                                      $$2,33,625$$.

Loss on Sale of IInd Truck
Value of Truck as on 1 Apr 2003 = $$17,10,000$$ divided by 2 = $$8,55,000$$
(-) Dep for 9 months @$$10\%$$ on $$8,55,000$$                     $$64,125$$
Value of Truck at the time of disposal                                         $$7,90,875$$
(-) Value received from Insurance Company                              $$1,50,000$$
Loss on Sale of IInd Truck                                                    Rs.$$6,40,875$$
Computation of Depreciation on IIIrd Truck
It was purchased on Jan 1, 2004. Hence, Dep will be charged for 2 months only i.e., Feb and Mar

                           Dep= $$[12,00,000\times\frac{10}{100}\times\frac{2}{12}]$$

Under straight line method amount of depreciation remains constant for every year. Under this method, a fixed and equal amount of depreciation, calculated at a fixed percentage on the original cost of fixed deprciable asset is written off during each accountingperiod over the expected useful life of the asset.

For depreciating a $$5$$ years lease, fixed instalment method of depreciation is suggested.

A method of depreciation in which depreciation is charged on fixed asset at fixed percentage on its opening balance every year is called reducing balance method of depreciation.

Under Fixed Instalment Method of depreciation an amount of depreciation remains constant every year.

Depreciation per year $$= \dfrac {\text {Cost of Fixed Asset} - \text {Scrap Value}}{\text {Life period of Fixed Asset}}$$
$$= \dfrac {(Purchase\ Price + Installation\ charges) - \text {Estimated Scrap Value}}{\text {Estimated Life period of Fixed Asset}}$$.

A method of depreciation in which depreciation is charged on fixed asset at fixed percentage on its original value every year is called straight line method of depreciation.

Under Reducing Balance Method of depreciation amount of depreciation changes every year.

Rate of depreciation under Double Declining method =
Straight line Depreciation rate*2 
Under Straight Line Method, Depreciation =
cost of asset - Salvage value / estimated life of asset
50000 - 5000/5 = 9000.
Depreciation rate = 9000/50000*100 = 18%
Rate of depreciation under Double Declining Method 
 18*2 = 36%

This statement is true
The written down value or the diminishing balance method of depreciation is based on the following assumptions:

 The service potential of an asset gradually reduces with the passage of time.

As an asset becomes old the cost of repairs and maintenance related to that asset gradually increases.

The written down value method of depreciation can be applied for an asset requiring more repairs in later years and whose working life cannot be reasonably estimated. For example Plant and Machinery, Buildings etc.

This statement is false. Written down value method is also known as Diminishing Balance method. In this method, depreciation is calculated at a fixed percentage on the original cost in the first year. However, in the subsequent years, depreciation is calculated at the same fixed percentage,  not on the original cost but on the written down values gradually reducing during the expected working life of the asset due to charge of depreciation. 

This statement is false. 

Answer :
                                   Journal Entries

Date	Particulars	LF	Amt. (Dr)	Amt. (Cr)
2001 Jul 1	Machinery A/c                    Dr To Sundry Creditor's A/c To Bank A/c (Being machinery purchased for Rs$$2,00,000$$ and installation charges of Rs $$25,000$$ paid through cheque)		$$2,25,000$$	$$2,00,000$$ $$25,000$$
Dec 31	Depreciation A/c                   Dr To Machinery A/c (Being depreciation charged on machinery for six months)		$$20,500$$	$$20,500$$
Dec 31	Profit and Loss A/c                Dr To Depreciation A/c (Being depreciation charged on machinery transferred to Profit and Loss Account)		$$20,500$$	$$20,500$$
2002 Dec 31	Depreciation A/c To Machinery A/c               Dr (Being depreciation charged on Machinery)		$$41,000$$	$$41,000$$
Dec 31	Profit and Loss A/c              Dr To Depreciation A/c (Being depreciation charged on machinery transferred to Profit and Loss Account)		$$41,000$$	$$41,000$$
2003 Dec 31	Depreciation A/c                  Dr To Machinery A/c (Being depreciation charged on machinery)		$$41,000$$	$$41,000$$
Dec 31	Profit and Loss A/c             Dr To Depreciation A/c (Being depreciation charged on machinery transferred to Profit and Loss Account)		$$41,000$$	$$41,000$$

Dr                                                          Machinery Account                        Cr

Date	Particulars	JF	Amt.(Rs)	Date	Particulars	JF	Amt. (Rs)
2001 Jul 1	To Sundry Creditor's A/c		$$2,00,000$$	2001 Dec 31	By Depreciation A/c		$$20,500$$
Jul 1	To Bank A/c		$$25,000$$	Dec 31	By Balance c/d		$$2,04,500$$
			$$2,25,000$$				$$2,25,000$$
2002 Jan 1	To Balance b/d		$$2,04,500$$	2002 Dec 31	By Depreciation A/c		$$41,000$$
				Dec 31	By Balance c/d		$$1,63,500$$
			$$2,04,500$$				$$2,04,500$$
2003 Jan 1	To Balance b/d		$$1,63,500$$	2003 Dec 31	By Depreciation A/c		$$41,000$$
				Dec 31	By Balance c/d		$$1,22,500$$
			$$1,63,500$$				$$1,63,500$$

Dr                                            Depreciation Account                      Cr

Date	Particulars	JF	Amt. (Rs)	Date	Particulars	JF	Amt. (Rs)
2001 Dec 31	To Machinery A/c		$$20,500$$	2001 Dec 31	By Profit & Loss A/c		$$20,500$$
			$$20,500$$				$$20,500$$
2002 Dec 31	To Machinery A/c		$$41,000$$	2002 Dec 31	By Profit & Loss A/c		$$41,000$$
			$$41,000$$				$$41,000$$
2003 Dec 31	To Machiery A/c		$$41,000$$	2003 Dec 31	By Profit & Loss A/c		$$41,000$$
			$$41,000$$				$$41,000$$

Working Note
Computation of Depreciation to be charged Annually
Dep = $$[\frac{Cost of Machine - Scrap}{No of years (Effective Life)}$$
          = $$\frac {2,25,000 - 20,000}{5}$$ = $$Rs.41,000$$

Answer : 

Dr                                                        Machinery Account                    Cr

Date	Particulars	JF	Amt. (Rs)	Date	Particulars	JF	Amt.(Rs)
2001 Jan	To Bank A/c Machine (I) = $$(56,000+24,000 + 5,000)$$		$$85,000$$	2001 Dec 31	By Depreciation A/c		$$4,250$$
				Dec 31	By Balance c/d		$$80,750$$
			$$85,000$$				$$85,000$$
2002 Jan 1	To Balance b/d Machine (I)		$$80,750$$	2002 Dec 31	By Depreciation A/c Machine (i) $$8,500$$ Machine (II) $$8,667$$		$$17,167$$
Sep 1	To Bank A/c Machine (II)$$(2,50,000 + 10,000)$$		$$2,60,000$$	2002 Dec 31	By Balance c/d Machine (I) $$72,750$$ Machine(II) $$2,51,333$$		$$3,23,583$$
			$$3,40,750$$				$$3,40,750$$
2003 Jan 1	To Balance b/d Machine (I) $$72,250$$ Machine (II) $$2,51,333$$		$$3,23,583$$	2003 Dec 31	By Depreciation A/c Machine (I) $$8,500$$ Machine (II) $$26,000$$		$$34,500$$
				Dec 31	By Balance c/d  Machine (I) $$63,750$$ Machine (II) $$2,25,333$$		$$2,89,083$$
			$$3,23,583$$				$$3,23,583$$
2004 Jan 1	To Balance b/d Machine (I) $$63,750$$ Machine (II) $$2,25,333$$		$$2,89,083$$	2004 Dec 31	By Depreciation A/c Machine (I) $$8,500$$ Machine (II) $$26,000$$ By Balance c/d Machine (I) $$55,250$$ Machine (II) $$1,99,333$$		$$34,500$$ $$2,54,583$$
			$$2,89,083$$				$$2,89,083$$

Answer 
Dr                                 Computer Account                                        Cr

Date	Particulars	JF	Amt.(Rs)	Date	Particulars	JF	Amt. (Rs)
2000 Apr 1	To Balance b/d		$$50,000$$	2001 Mar 31	By Depreciation A/c C1 = $$12,000$$ C2 = $$18,750$$ C3 = $$750$$		$$31,500$$
Jan 1	To Bank A/c		$$30,000$$	Mar 31	By Balance c/d C1 = $$38,000$$ C2 = $$2,31,250$$ C3 = $$29,250$$		$$2,98,500$$
			$$3,30,000$$				$$3,30,000$$
2001 Apr 1	To Balance b/d C1 = $$38,000$$ C2 = $$2,31,250$$ C3 = $$29,250$$		$$2,98,500$$	2002 Mar 31	By Depreciation A/c C1 = $$12,000$$ C2 = $$25,000$$ C3 = $$3,000$$		$$40,000$$
				Mar 31	By Balance c/d C1 = $$26,000$$ C2= $$2,06,250$$ C3 = $$26,250$$		$$2,58,500$$
			$$2,98,500$$				$$2,98,500$$
2002 Apr 1	To Balance b/d C1 = $$26,000$$ C2 = $$2,06,250$$ C3 = $$26,250$$		$$2,58,500$$	2003 Mar 31	By Depreciation A/c C1 = $$12,000$$ C2 = $$25,000$$ C3 = $$3,000$$		$$40,000$$
				Mar 31	By Balance c/d C1 = $$14,000$$ C2 = $$1,81,250$$ C3 = $$23,250$$		$$2,18,500$$
			$$2,58,500$$				$$2,58,500$$

 Answer :
Dr                                           Cranes Account                  Cr   

Date	Particulars	JF	Amt.(Rs)	Date	Particulars	JF	Amt.(Rs)
2004 Apr 1	To Balance b/d		$$40,00,000$$	2004 Oct 1	By Depreciation A/c (@ $$10\%$$ on $$5,00,000$$ for six moths)		$$25,000$$
Oct 1	To Profit & Loss A/c (Profit)		$$47,500$$	Oct 1	By Bank A/c $$[4,75,000\times \frac{110}{100}]$$		$$5,22,500$$
Oct 1	To Bank A/c $$(4,50,000\times2)$$		$$9,00,000$$	Dec 31	By Depreciation A/c (@ $$10\%$$ on $$35,00,000 for 9 months)		$$2,62,500$$
					(@10 months on $$9,00,000$$ for 3 months)		$$22,500$$
				Dec 31	By Balance c/d		$$41,15,000$$
			$$49,47,500$$				$$49,47,500$$

Answer :

Dr                                          Machinery Account                             Cr

Date	Particulars	JF	Amt.(Rs)	Date	Particulars	JF	Amt.(Rs)
2000 Jul 1	To Bank A/c $$(75,000\times10)$$		$$7,50,000$$	2000 Dec 31	By Depreciation A/c		$$56,250$$
			$$7,50,000$$				$$7,50,000$$
2001 Jan 1	To Balance b/d		$$6,93,750$$	2001 Dec 31	By Depreciation A/c		$$1,04,063$$
				Dec 31	By Balance c/d		$$5,89,687$$
			$$6,93,750$$				$$6,93,750$$
2002 Jan 1	To Balance b/d		$$5,89,687$$	2002 Oct 1	By Depreciation A/c @ $$15\%$$ on $$58,968$$ for 9 months		$$6,634$$
Oct 1	To Bank A/c		$$1,25,000$$	Oct 1	By Bank A/c (Insurance Company)		$$45,000$$
				Oct 1	By Profit and Loss A/c (Loss)		$$7,335$$
				Dec 31	By Depreciation A/c Old = 79,608 New = 4,688		$$84,296$$
				Dec 31	By Balance c/d Old = $$4,51,110$$ New = $$1,20,312$$		$$5,71,422$$
			$$7,14,687$$				$$7,14,687$$
2003 Jan 1	To Balance b/d Old = $$4,51,110$$ New = $$1,20,312$$		$$5,71,422$$	2003 Dec 31	By Depreciation A/c Old = $$67,667$$ New = $$18,047$$		$$85,714$$
				Dec 31	By Balance c/d Old = $$3,83,443$$ New = $$1,02,665$$		$$4,85,708$$
			$$5,71,422$$				$$5,71,422$$

Working Note
Cost of one Machine as on 1 Jan, 2002 is (5,89,687 divided by 10) = Rs.$$58,968.8
Lost on Sale of Machine = $$58,969 - [Dep = 6,634] - [Claim = 45,000] = Rs 7,365$$

Answer :
Dr                                            Machinery Account                          Cr

Date	Particulars	JF	Amt.(Rs)	Date	Particulars	JF	Amt. (Rs)
2001  Jul 1	To Bank A/c		$$3,50,000$$	2001 Dec 31	To Depreciation A/c (@$$10\%$$ for 6 months)		$$17,500$$
				Dec 31	By Balance c/d		$$3,32,500$$
			$$3,50,000$$				$$3,50,000$$
2002 Jan 1	To Balance b/d (M1)		$$3,32,500$$	2002 Dec 31	By Depreciation A/c M1 = $$35,000$$ M2 = $$11,250$$ M3 = (3 months) $$2,500$$		$$48,750$$
Apr 1 Oct 1	To Bank A/c (M2) To Bank A/c (M3)		$$1,50,000$$ $$1,00,000$$	Dec 31	By Balance c/d M1 = $$2,97,500$$ M2= $$1,38,750$$ M3 = $$97,500$$		$$5,33,750$$
			$$5,82,500$$				$$5,82,500$$
2003 Jan 1	To Balance b/d M1 = $$2,97,500$$ M2 = $$1,38,750$$ M3 = $$97,500$$		$$5,33,750$$	2003 Jan 1	By Bank A/c (M1)		$$1,00,000$$
				Jan 1	By Profit & Loss A/c (Loss)		$$1,97,500$$
					By Depreciation A/c M2 = $$15,000$$ M3 = $$10,000$$		$$25,000$$
				Dec 31	By Balance c/d M2 = $$1,23,750$$ M3 = $$87,500$$		$$2,11,250$$
			$$5,33,750$$				$$5,33,750$$