NCERT Solutions for Class 11 Accountancy Chapter 7 Depreciation, Provisions & Reserves|Download PDF

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Class 11 Accountancy NCERT Solutions Chapter 7 Depreciation, Provisions & Reserves

NCERT Solutions Class 11 Accountancy Chapter 7, are available on Vedantu, in a PDF format, and you can download them for free. These solutions save your time and effort in looking for answers in different books and websites. Vedantu being the one-stop solution to all your NCERT problems makes an effort for the students to make learning a better and hassle-free experience. Chapter 7 Accounts Class 11 NCERT Solutions provides a detailed explanation of the topics covered in this chapter. Hence, when you go through these solutions, you will be able to understand the concepts easily.


Topics Covered in Chapter 7 Depreciation, Provisions & Reserves of CBSE Class 11 Accountancy

Students looking for NCERT Solutions of Chapter 7 Depreciation, Provisions & Reserves of CBSE Class 11 Accountancy must know the topics covered in this chapter according to the latest syllabus prescribed by the CBSE Board. This chapter is divided into two sections, which contain the following topics:


Section – I

  1. Depreciation

  • Meaning of Depreciation

  • Features of Depreciation

  1. Depreciation and other Similar Terms

  • Depletion

  • Amortisation

  1. Causes of Depreciation

  • Wear and Tear due to Use or Passage of Time

  • Expiration of Legal Rights

  • Obsolescence

  • Abnormal Factors

  1. Need for Depreciation

  • Matching of Costs and Revenue

  • Consideration of Tax

  • True and Fair Financial Position

  • Compliance with Law

  1. Factors Affecting the Amount of Depreciation

  • Cost of Asset

  • Estimated Net Residual Value

  • Depreciable Cost

  • Estimated Useful Life

  1. Methods of Calculating Depreciation Amount

  • Straight Line Method (Advantages and Limitations)

  • Written Down Value Method (Advantages and Limitations)

  1.  Straight Line Method and Written Down Method: A Comparative Analysis

  • Basis of Charging Depreciation

  • Annual Charge of Depreciation

  • Total Charge Against Profit and Loss Account on Account of Depreciation and Repair Expenses

  • Recognition by Income Tax Law

  • Suitability

  1.  Methods of Recording Depreciation

  • Charging Depreciation to Asset account

  • Creating Provision for Depreciation Account/Accumulated Depreciation Account

  1. Disposal of Asset 

  •  Use of Asset Disposal Account

  1.  Effect of any Addition or Extension to the Existing Asset

Section – II Provisions And Reserve

  1.  Provisions

  • Accounting Treatment for Provisions

  1. Reserves 

  • Difference between Reserve and Provision

  • Types of Reserves

  • Difference between Revenue and Capital Reserve

  • Importance of Reserves

  1. Secret Reserve


Questions based on both sections are asked in the NCERT exercise. We have provided detailed and easy-to-understand solutions for the students.

The NCERT exercise is divided into three sections:

Section 1 is of short questions and in this section a total of 13 questions are asked. All the questions are theoretical-type questions. Similarly, in Section-2 6 long questions are asked which are also theory-based questions. 


The third section is on numerical problems, in which a total of 22 questions are asked.  

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

1. What is ”Depreciation”? 

Ans: Depreciation is the decrease in the value of fixed assets caused by wear and tear over time. These fixed assets could be anything from furniture to machinery to a building. It is important to note that such fixed assets do not include land, as the value of land increases over time. 


2. State briefly the need or providing depreciation. 

Ans: The following are the requirements for providing depreciation:

  • The value of fixed assets depreciates over time as a result of wear and tear, reducing the asset's capacity. As a result, depreciation must be recorded in order to reflect such an effect on the books of account.

  • Depreciation depicts the true financial position of the business because it eliminates the possibility of assets being overvalued. 

  • Depreciation meets the need and requirements of tax regulations and other compliances.

  • Depreciation allows the business to meet the revenue matching principles, which require that the expenses incurred by the business be incurred in the same period that the income is recognized. 


3. What are the causes of depreciation? 

Ans: The following are the causes of depreciation:

  • Some current assets have a finite life after which they become perishable. Inventory is an example of such an asset.

  • Because fixed assets wear and tear over time, it is necessary to record the reduction in the cost of such fixed assets.

  • As new technological innovations emerge, fixed assets such as equipment and machinery become obsolete. This must be properly recorded in the books of account, and depreciation accomplishes this.

  • The use of some assets depletes over time, and this depletion of assets is recorded using accounting depreciation. Gas and oil reservoirs are examples of such assets. 


4. Explain basic factors affecting the amount of depreciation. 

Ans: The following are the primary factors that influence the amount of depreciation:

  • Depreciable cost – This is the cost that remains after deducting both the residual cost and the various costs of the asset. The total depreciation should be equal to the total depreciation charged over the useful life of the asset.

  • Net residual value – This is the value of the asset's sales after its useful life has ended. It is calculated by deducting all expenses incurred during the disposal of the asset.

  • Various Costs of the Asset – Aside from the basic purchase cost of the asset, an asset will incur various costs. These expenses can take the form of transportation, commission fees, insurance premiums, and so on. These are the expenses incurred in order to restore the asset to working order.

  • Estimation of useful life – The useful life of any asset is defined as its actual commercial life. As a result, the concept of the asset's physical life is excluded because it considers the fact that the asset will continue to sustain even after its useful life has ended, which may not be of commercial productivity for the business. 


5. Distinguish between straight line method and the written down value method of calculating depreciation. 

Ans: The following are the differences between the straight line and written down value methods: 

  • The straight-line method calculates depreciation based on the original cost, whereas the written down value method calculates depreciation based on the net cost. 

  • In the straight line method, the amount of annual depreciation is fixed, whereas in the written down value method, depreciation decreases the asset's value each successive year.

  • The straight line method charges on the depreciation of the total charge of the asset, which includes the depreciation charge and other repair expenses. However, the charge of depreciation decreases year after year in written down value, so the total charge remains constant.

  • The income tax authority recognizes the written down value method of depreciation but does not recognize the straight line method. Straight-line depreciation is appropriate for assets that require fewer repairs and thus become less scrap and obsolete over time. Land and buildings are two examples of such assets. The written down value method, on the other hand, is used in cases where there is a significant amount of repair expense or the market is affected by technological change.


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

Ans: When the assets have long-term utility and the repair and maintenance costs are expected to rise in the later years of the asset's life, the written down value method is more useful than the straight-line method of depreciation. As a result, this method of depreciation does not impose a burden on the profit or loss accounts. This occurs because the rate of depreciation in this method of depreciation decreases year after year. 


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

Ans: Depreciation has a direct impact on the profit and loss account because it is recorded as an expense. When the amount of depreciation is greater, the net company of income is less than in the case where the rate of depreciation was lower. The effect of depreciation on the balance sheet reduces the net amount of assets, which has a further impact on the business's net income on the balance sheet. 


8. Distinguish between “provision” and “reserve”. 

Ans: The distinction between provision and reserve is as follows: 

  • Provision refers to the charge against profit for determining net profit, whereas reserve refers to the appropriation of profit to determine the business's strengthened financial position.

  • Provision determines the likely expenses that the business will incur in a given accounting period, whereas reserves are used to strengthen the business's financial position. 

  • Provision is shown on the asset side of the balance sheet, whereas reserves are shown as the current liability on the liabilities side of the balance sheet.

  • Provisions reduce taxable profit because they are deducted from pre-tax profits. The reserves, on the other hand, are calculated on the basis of profits after taxes, which does not show the effect on profits.

  • The creation of provisions in accordance with regulations is required to determine fair profits, whereas the creation of reserves, with the exception of specific reserves, is at the discretion of a company.

  • Provisions cannot be used to distribute dividends, whereas a company's general reserve can be used to do so. 


9. Give four examples each of “provision” and “reserves”. 

Ans: It is required to make provisions, which are undertaken and determined based on the identifiable expenses that any business incurs in an expected manner during the accounting period. The reserves, on the other hand, are intended to strengthen the company's financial position. The four examples of each are:

  • Provision for bad and doubtful debts 

  • Provision for repairs and maintenance 

  • Provision for depreciation 

  • Provision for taxes

  • General reserve 

  • Capital reserve 

  • Workmen compensation reserve 

  • Dividend equalisation reserve 


10. Distinguish between “revenue reserve” and “capital reserve”. 

Ans: The following are the distinctions between revenue reserves and capital reserves: 

  • Revenue reserves are created to strengthen the financial position of the business, whereas capital reserves are created to meet legal requirements. 

  • Revenue reserves are generally used to meet contingencies and general needs such as dividend distributions, whereas capital reserves are used to meet legal requirements. 

  • Revenue reserves are created on the basis of revenue profits that occur in a routine manner during the regular operation of the business. The capital reserve, on the other hand, is created from the business's capital and is used for purposes that do not occur in regular business operations. 


11. Give four examples of “revenue reserve” and “capital reserves”. 

Ans: Here are four examples of revenue reserves:

  • General reserve 

  • Dividend equalization reserve 

  • Workers' compensation reserve 

  • Debenture redemption reserve

The four examples of capital reserves are as follows:

  • Premium on share or debenture issuance

  • Profit from the sale of fixed assets; 

  • Profit from the revaluation of fixed assets and liabilities; and 

  • Profit from the redemption of debentures.


12. Distinguish between ‘general reserve’ and ‘specific reserve’. 

Ans: The 'general reserve' is established to strengthen the company's financial position, and it can thus be used for any purpose the management sees fit. On the other hand, the creation of a "specific reserve" is done to address a specific need of the organization. Thus, when specific reserves are used for the purpose for which they were created, they outlive their usefulness. 


13. Explain the concepts of “secret reserve”. 

Ans: The secret reserve is established to deal with the reduction of the business's tax liability and to combine it with the profits made by the business in years when it is incurring losses in order to increase net profits. The secret reserve is not shown on the company's Balance Sheet, and it is created on the basis of highly charged depreciation on assets, showing contingent liabilities as actual liabilities, and making an excessive provision for doubtful debts. Thus, the establishment of a secret reserve is permissible if it is within reasonable limits. 


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

Ans: Depreciation is defined as the reduction in the value of a business's asset over time. Fixed assets that must be depreciated include machinery, furniture, buildings, offices, and so on. (It is important to note that land is not a depreciable asset, and its value increases over time.)

The following are the requirements for providing depreciation:

  • Every fixed asset loses value over time due to wear and tear, reducing the working capacity of these assets. As a result, the depreciation is carried out in order to reflect this decrease in the books of accounts.

  • The depreciation thus depicts the company's true financial position because it does not overestimate the prices of assets in the books of account. Companies are required to meet the obligations imposed by the tax authorities, which necessitates the recording of depreciation in the books of accounts. According to the revenue matching principles, expenses incurred by the business must be accounted for in the same accounting period in which they occurred in order for the business to gain revenue.

The following are the causes of depreciation: 

  • The value of fixed assets decreases over time as fixed assets such as equipment and machinery become obsolete due to the introduction of new technology and equipment. As a result, such asset obsolescence must be recorded in the books of account through accounting depreciation.

  • Some fixed assets have a very short life span and die after their life is over. This occurs with current assets such as inventory, and it is critical for the business to record this depreciation in the price of the business's assets. 

  • Every fixed asset is bound to suffer from wear and tear over time, which reduces the value of the asset, and such depreciation is required to account for the reduction in the amount of the asset.

  • As the use of some assets depletes, depreciation becomes the means by which the asset's decrease in value can be accounted for. 


15. 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. 

Ans: The Straight-line method is a technique for calculating the depreciation that occurs to the asset's original cost. The amount with which the depreciation must be done is fixed under this method, and thus the depreciation occurs every year with the specified fixed amount.

The written down value method, on the other hand, refers to a depreciation technique in which the depreciation to the value of the fixed asset occurs with the reduction decreasing year after year. It subtracts the amount of the original cost from the amount of depreciation, which is calculated based on the asset's usage until it is used.


The straight-line method has the following advantages:

  • The straight-line method is easier and simpler to calculate than the written down value method.

  • Assets can be depreciated until the asset's value is zero.

  • Because the same amount of depreciation is charged each year, comparing figures in the Statement of Profit or Loss becomes easier.

  • It is used for assets that have incurred low repair and maintenance costs as a result of continuous use of the asset over a period of time. 

The Straight Line Method has the following limitations:

  • The burden of depreciation increases on the profit or loss account in the later years of the asset as the cost of repairs and maintenance rises and the age of the asset.

  • Even if the asset is in usable condition for the business, its value becomes zero.

Similarly, the Written Down Value Method has a number of advantages, which are as follows:

  1. This method of depreciation is based on the logical assumption that the asset is used more in its early years and less in its later years.

  2. As a result, it is appropriate for assets that have a higher cost of repair I the later years of the asset's life as the amount of depreciation decreases I the later years of the asset's life

  3. The income tax authorities recognize this method.

  4. The loss due to asset obsolescence decreases as more depreciation is charged in the early years of the asset.

The written down value method has the following limitations:

  1. The written down value method of calculation can be complex and difficult.

  2. The asset cannot be completely written off while it is being used in the business because the asset's value does not become zero at any time.


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

Ans: Depreciation is recorded using one of two methods:

  1. Charging depreciation directly to the asset account – In this method, depreciation is first charged from the asset's cost, then to the profit and loss account. The balance sheet thus shows the net value of the asset after depreciation is deducted. The journal entries in this method are as follows:

    • Subtracting depreciation from the asset's cost
      Depreciation ac                     Dr 

    • To Asset ac                             Cr

    • To charge the depreciation to profit and loss account
      Profit and Loss ac                 Dr
      To Depreciation                    Cr

  2. Making a provision for accumulated depreciation – The amount of depreciation to be charged in the accumulated under the separate account under this method of charging depreciation. Thus, in the balance sheet, the asset's value is shown in its original value, and the accumulated amount of depreciation is shown in the liabilities side of the balance sheet. 

The journal entries in this method are as follows: 

  • Including depreciation in the depreciation provision 

Depreciation ac                              Dr 

To Provision for depreciation       Cr 

  • To charge the depreciation to profit and loss account 

Profit and Loss ac                            Dr 

To Depreciation                               Cr 


17. Explain determinants of the amount of depreciation. 

Ans:

  • Depreciable cost – This is the cost that remains after deducting both the residual cost and the various costs of the asset. The total depreciation should be equal to the total depreciation charged over the useful life of the asset.

  • Net residual value – This is the value of the asset's sales after its useful life has ended. It is calculated by deducting all expenses incurred during the disposal of the asset. 

  • Various Costs of the Asset – Aside from the basic purchase cost of the asset, an asset will incur various costs. These expenses can take the form of transportation, commission fees, insurance premiums, and so on. These are the expenses incurred in order to restore the asset to working order.

  • Estimation of useful life – The useful life of any asset is defined as its actual commercial life. As a result, the concept of the asset's physical life is excluded because it considers the fact that the asset will continue to sustain even after its useful life has ended, which may not be of commercial products for the business. 


18. Name and explain different types of reserves in detail. 

Ans: A business establishes a reserve in order to strengthen its financial position through retained earnings. There are several types of reserves:

  1. Revenue Reserve: The revenue reserve is a reserve created from profits generated by the business's normal routine operations. These can be used to meet either a general or a specific purpose. There are two kinds of reserves: general reserves and specific reserves. 

    • General Reserve: These reserves are created without a specific purpose in mind, so they can be used for anything, including the goal of expansion and growth. For example, retained earnings, contingency reserves, and so on.

    • Specific Reserve: These are reserves that are created for a specific purpose.

Examples of such reserves include debenture redemption reserves, dividend equalization reserves, and so on.

  1. Capital Reserve: It is created from capital profit, i.e., profit from activities other than normal business operations, such as the sale of fixed assets, and so on. It was created to compensate for the capital loss. It cannot be paid out as a dividend. The following is an example of capital reserves. 

    • Premium on share issuance 

    • Premium on debenture issuance 

    • Profit on debenture redemption 

    • Profit on fixed asset sale 

    • Profit on the reissue of forfeited shares vi. Profit before incorporation

  2. Secret Reserves: Secret reserves are reserves created by overstating liabilities or understating assets. They are not reflected in the Balance Sheet. Because the liabilities are overstated, this reduces tax liabilities. Management creates it to avoid competition by lowering profit. The Companies Act of 1956 forbids the establishment of a secret reserve and requires full disclosure of all material facts and accounting policies when preparing final statements. 


19. What are the provisions. How are they created? Give the accounting treatment in case of provision of doubtful debts?

Ans: Provisions are created by businesses to allow them to incur expenses and losses that are known to the business and that they may incur in the future. Provisions are charged on the business's revenue and are thus shown as a deduction from assets or as the business's current liability. Some examples of provisions are as follows:

  • Provision for bad and doubtful debts 

  • Provision for depreciation 

  • Provision for repairs and maintenance 

The accounting treatment of provision for doubtful debts is as follows:

Doubtful debts are those for which the company is unsure of the recovery, so they make a provision to account for such losses. The following is the journal entry: 

Profit and loss ac                                 Dr

To provision for doubtful debts        Cr 


20. On April 01, 2010, Bajrang Marbles purchased a Machine for Rs 2,80,000 and spent Rs 10,000 on its carriage and Rs 10,000 on its installation. It is estimated that its working life is 10 years and after 10 years its scrap value will be Rs 20,000. 

(a) Prepare a Machine account and Depreciation account for the first four years by providing depreciation on the 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.

Ans: (a) Books of Bajrang Marbles 

Machinery Account

Dr.                                                                                                                    Cr.

Date

Particulars

J.F.

Amount Rs.

Date

Particulars 

J.F.

Amount Rs.

2010 Apr. 01

Bank


3,00,00

           0

2011 Mar.31

Depreciation on Balance c/d


28,000

2,72,00

            0




3,00,00

           0




3,00,00

             0

2011 Apr. 01

Balance b/d


2,72,00

           0

2012 Mar.31

Mar.31

Depreciation on Balance c/d


28,000

2,44,00

            0




2,72,00

           0




2,72,00

             0

2012 Apr. 01

Balance b/d


2,44,00

           0

2013 Mar.31

Mar. 31

Depreciation on Balance c/d


28,000

2,16,00

            0




2,44,00

           0




2,44,00

             0

2013 Apr. 01

Balance b/d


2,16,00

           0

2014 Mar.31

Mar.31

Depreciation on Balance c/d


28,000

1,88,00

            0




2,16,00

           0




2,16,00

             0


Note: According to the solution, the closing balance of the machinery account at the end of the fourth year is Rs 1,88,000; however, the answer in the book is Rs 1,28,000

However, if we had taken the machine's purchase price of Rs 1,80,000 rather than Rs 2,80,000, the closing balance would have been Rs 1,28,000 instead of Rs 2,80,000.

Working notes: Calculation of Annual depreciation

$\text {Depreciation (p.a)}$ = $\dfrac{(\text { original cost - scrap value) }}{\text { Estimated life of asset (years) }}$

$=\dfrac{(2,80,000+10,000+10,000-20,000)}{10}$

$=\text{Rs.}28,000\; \text{per annum}$


Depreciation Account

Dr.                                                                                                                        Cr.

Date

Particulars

J.F.

Amount Rs.

Date

Particulars 

J.F.

Amount Rs.

2011 Mar. 31

Machinery


28,000

2011 Mar.31

Profit and loss


28,000





28,000

           




28,000

           

2012 Mar. 31

Machinery


28,000

         

2012 Mar.31

Profit and loss


28,000





28,000

          




28,000


2013 Mar. 31

Machinery


28,000

2013 Mar.31

Profit and loss


28,000





28,000

           




28,000

           

2014 Mar. 31

Machinery


28,000

         

2014 Mar.31

Profit and loss


28,000





28,000

          




28,000



(b) Machinery Amount

Machinery Account

Dr.                                                                                                                    Cr.

Date

Particulars

J.F.

Amount Rs.

Date

Particulars 

J.F.

Amount Rs.

2010 Apr. 01

Bank


3,00,00

           0

2011 Mar.31

Depreciation on Balance c/d


3,00,00

           0




3,00,00

           0




3,00,00

             0

2011 Apr. 01

Balance b/d


3,00,00

           0

2012 Mar.31

Mar.31

Depreciation on Balance c/d


3,00,00

           0




3,00,00

           0




3,00,00

           0

2012 Apr. 01

Balance b/d


3,00,00

           0

2013 Mar.31

Mar. 31

Depreciation on Balance c/d


3,00,00

           0




3,00,00

           0




3,00,00

            0

2013 Apr. 01

Balance b/d


3,00,00

           0

2014 Mar.31

Mar.31

Depreciation on Balance c/d


3, 00,00

             0




3,00,00

           0




3,00,00

            0


Provision for Depreciation Account

Dr.                                                                                                                   Cr.

Date

Particulars

J.F.

Amount Rs.

Date

Particulars 

J.F.

Amount Rs.

2011 Mar.31

Balance c/d


28,000

         

2011 Mar.31

Depreciation on


3,00,00

           0




28,000




3,00,00

             0

2012 

Mar.31

Balance c/d


56,000

2011 Apr.01 2012

Mar.31

Balance c/d


Depreciation on


28,000

        

28,000




56,000

           




56,000

           

2013 Mar. 31

Balance c/d


84,000

           

2012 Mar.31

2013 Mar. 31

Balance c/d


Depreciation on


56,000

           

28,000




84,000

           




84,000

            0

2014 Apr. 01

Balance c/d


1,12,00

           0

2003 Apr.01 2014

Mar.31

Balance b/d


Depreciation on


84,000

            

28,000




1,12,00

           0




1,12,00

            0


Depreciation Account

Dr.                                                                                                                  Cr.

Date

Particulars

J.F.

Amount Rs.

Date

Particulars 

J.F.

Amount Rs.

2011 Mar. 31

Provision for depreciation


28,000

2011 Mar.31

Profit and loss


28,000





28,000

           




28,000

           

2012 Mar. 31

Provision for depreciation


28,000

         

2012 Mar.31

Profit and loss


28,000





28,000

          




28,000


2013 Mar. 31

Provision for depreciation


28,000

2013 Mar.31

Profit and loss


28,000





28,000

           




28,000

           

2014 Mar. 31

Provision for depreciation


28,000

         

2014 Mar.31

Profit and loss


28,000





28,000

          




28,000



Note: According to the solution, the closing balance of the Provision for Depreciation Account at the end of the fourth year is Rs 1,12,000; however, the answer in the book is Rs 72,000.

However, if we had taken the machine's purchase price of Rs 1,80,000 rather than Rs 2,80,000, the closing balance would have been Rs 72,000.


21. On July 01, 2010, Ashok Ltd. Purchased a Machine for Rs 1,08,000 and spent Rs 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 Rs 12,000. Prepare machine account and depreciation Account in the books of Ashok Ltd. For the first three years, if depreciation is written off according to straight-line method. The account is closed on December 31st, every year.

Ans:

Machinery Account

Dr.                                                                                                                  Cr.

Date

Particulars

J.F.

Amount Rs.

Date

Particulars 

J.F.

Amount Rs.

2010 Jul-01

Bank


12,000

         

2010 Dec-31

Depreciation


Balance c/d


4500


115500




12,000




120000

2011 

Jan-01

Balance b/d


115500

2011 Dec-31

Depreciation


Balance c/d


9000

        

106500




115500

           




115500

           

2012 Jan-01

Balance b/d


106500

           

2012 Dec-31

Depreciation


Balance c/d 


9000

           97500




106500




106500

2013 Jan-01

Balance b/d


97500






Depreciation Account

Dr.                                                                                                                 Cr.

Date

Particulars

J.F.

Amount Rs.

Date

Particulars 

J.F.

Amount Rs.

2010 Dec- 31

Machinery


4500

2010 Mar.31

Profit and loss


4500





4500

           




4500

           

2011 Dec- 31

Machinery


9000

         

2011 Mar.31

Profit and loss


9000





9000

          




9000


2012 Dec- 31

Machinery


9000

2012 Mar.31

Profit and loss


9000






9000

           




9000

           


Working Note:

Calculation of Annual Depreciation 

$\text{Depreciation} = \dfrac{108000+12000-12000}{12}=\text{9000p.a}$


22. Reliance Ltd. Purchased a second-hand machine for Rs 56,000 on October 01, 2011, and spent Rs 28,000 on its overhaul and installation before putting it into operation. It is expected that the machine can be sold for Rs 6,000 at the end of its useful life of 15 years. Moreover, an estimated cost of Rs 1,000 is expected to be incurred to recover the salvage value of Rs 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.

Ans:

 Machinery Account

Dr.                                                                                                                 Cr.

Date

Particulars

J.F.

Amount Rs.

Date

Particulars 

J.F.

Amount Rs.

2011 Oct-01

Bank


84000

           

2011 Dec-31

Balance c/d


84000

           




84000

           




84000

           

2012 Jan-01

Balance c/d


84000

           

2012 Dec-31

Balance c/d


84000

           




84000

           




84000

           

2013 Jan-01

Balance c/d


84000

           

2013 Dec-31

Balance c/d


84000

           




84000

          




84000

            


Provision for Depreciation Account

Dr.                                                                                                                Cr.

Date

Particulars

J.F.

Amount Rs.

Date

Particulars 

J.F.

Amount Rs.

2011 Dec-31

Balance c/d


1316

           

2011 Dec-31

Depreciation


1316

           




1316

           




1316

           

2012 Dec-31

Balance c/d


6583

           

2012 Jan-01

Dec-31

Balance c/d


Depreciation


1316

 

5267          




6583

           




6583

           

2013 Dec-31

Balance c/d


11850

           

2013 Jan-01


Dec- 31

Balance c/d



Depreciation


6583



5267           




11850

          




11850

            





2014 Jan-01

Balance b/d


11850


Working Note:

Calculation of Annual Depreciation 

$\text{Depreciation = }\frac{56000+28000-6000+1000}{15}=5267\text{p}\text{.a}$


23. Berlia Ltd. Purchased a second-hand machine for Rs 56,000 on July 01, 2015, and spent Rs 24,000 on its repair and installation and Rs 5,000 for its carriage. On September 01, 2016, it purchased another machine for Rs 2,50,000 and spent Rs 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 20018, if depreciation is provided on machinery @10% p.a. on written down value method annually on December 31.

Ans:

Machinery A/c (Original Cost Method)

Date

Particular

Amount

Date

Particular

Amount

2015



2015



Jul-01

Bank (i)

85000

Dec-31

Depreciation

4250


(5600+24000+5000)


Dec-31

Balance c/d

80750



85000



85000

2016



2016



Jan-01

Balance b/d (i)

80750

Dec-31

Depreciation

17167

Sep-01

Bank (ii)

26000

          0


(i) 8500 (ii) 8667



(250000 + 10000)


Dec-31

Balance c/d

323583

           





(i) 72250 (ii) 251333




340750



340750

2017



2017



Jan-01

Balance b/d

323583

Dec-31

Depreciation

34500


(i) 72250 (ii) 251333



(i) 8500 (ii) 26000





Dec-31

Balance c/d

289083





(i) 63570 (ii) 225333




323583



323583

2018



2018



Jan-01

Balance b/d

289083

Dec-31

Depreciation

34500


(i) 63750 (ii) 225333



(i) 8500 (ii) 26000





Dec-31

Balance c/d

254583





(i) 55250 (ii) 199333





289083


289083


Depreciation Account

Dr.                                                                                                                  Cr.

Date

Particulars

J.F.

Amount Rs.

Date

Particulars 

J.F.

Amount Rs.

2015 Dec- 31

Machinery


4250

2015 Dec-31

Profit and loss


4250





4250

           




4250

           

2016 Dec- 31

Machinery

(i) 8500 (ii) 8667


17167

         

2016 Dec-31

Profit and loss


17167





17167

          




17167


2017 Dec- 31

Machinery

(i) 8500 (ii) 26000


34500

2017

Dec-31

Profit and loss


34500






34500

           




34500

           

2018

Dec-31

Machinery (i) 8500 (ii) 26000


34500

2018 Dec-31

Profit and loss


34500




34500




34500


Working Note: 

Calculation of Annual Depreciation 

(i) Depreciation (p.a.) on machinery purchased on Jul 01, 2015 $=\dfrac{56000+24000+5000\times 10}{100}=Rs.8500\;p.a.$ 

(ii) Depreciation (p.a.) on machinery purchased on Sep 01, 2016 $=\dfrac{250000+10000\times 10}{100}=Rs.26000\;p.a.$


(b) Machinery A/c (Written Down Value Method)

Date

Particular

Amount

Date

Particular

Amount

2015



2015



Jul-01

Bank (i)

85000

Dec-31

Depreciation

4250


(5600+24000+5000)


Dec-31

Balance c/d

80750



85000



85000

2016



2016



Jan-01

Balance b/d (i)

80750

Dec-31

Depreciation

16742

Sep-01

Bank (ii)

26000

          0


(i) 8075 (ii) 8667



(250000 + 10000)


Dec-31

Balance c/d

324008

           





(i) 72675 (ii) 251333




340750



340750

2017



2017



Jan-01

Balance b/d

324008

Dec-31

Depreciation

32401


(i) 72675 (ii) 251333



(i) 7268 (ii) 25133





Dec-31

Balance c/d

291607





(i) 65407 (ii) 226200




324008



324008

2018



2018



Jan-01

Balance b/d

291607

Dec-31

Depreciation

29160


(i) 65407 (ii) 226200



(i) 6540 (ii) 22620





Dec-31

Balance c/d

262447





(i) 58867 (ii) 203580





291607


291607


Depreciation Account

Dr.                                                                                                                  Cr.

Date

Particulars

J.F.

Amount Rs.

Date

Particulars 

J.F.

Amount Rs.

2015 Dec- 31

Machinery


4250

2015 Dec-31

Profit and loss


4250





4250

           




4250

           

2016 Dec- 31

Machinery

(i) 8075 (ii) 8667


16742

         

2016 Dec-31

Profit and loss


16742





16742

          




16742


2017 Dec- 31

Machinery

(i) 7268 (ii) 25133


32401

2017

Dec-31

Profit and loss


32401






32401

           




32401

           

2018

Dec-31

Machinery (i) 6540 (ii) 22620


29160

2018 Dec-31

Profit and loss


29160




29160




29160


24. Ganga Ltd. purchased machinery on January 01, 2014, for Rs 5,50,000 and spent Rs 50,000 on its installation. On September 01, 2014, it purchased another machine for Rs 3,70,000. On May 01, 2016, it purchased another machine for Rs 8,40,000 (including installation expenses). Depreciation was provided on machinery @10% p.a. on the 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.

Ans:

(a) Machinery A/c 

Date

Particular

Amount

Date

Particular

Amount

2014



2014



Jan-01

Bank (i)

600000

Dec-31

Depreciation

72333


(550000+50000)



(i) 60000 (ii) 12333


Sep-01

Bank (ii) 

370000

Dec-31

Balance c/d

897667





(i) 540000

(ii) 357667




970000



970000

2015

Jan-01

Balance b/d

897667

Dec-31

Depreciation

153000


(i) 540000 (ii) 357667



(i) 60000 (ii) 37000


May- 01

Bank (iii)

840000


(iii) 56000





Dec-31

Balance c/d

1584667





(i) 480000

(ii) 320667






(iii) 784000




1737667



1737667

2016 Jan-01


Balance b/d

1584667

Dec-31

Depreciation 

181000


(i) 480000 (ii) 320667 (iii) 784000



(i) 60000 (ii) 37000 (iii) 84000





Dec-31

Balance c/d

1403667





(i) 420000

(ii) 283667

(iii) 700000 




1584667



1584667

2017 Jan-01


Balance b/d

1403667

Dec-31

Depreciation



(i) 420000 (ii) 283667 (iii) 700000



(i) 60000 (ii) 37000 (iii) 84000





Dec-31

Balance c/d

1222667





(i) 360000 (ii) 246667 (iii) 616000




1403667



1403667


Depreciation Account

Dr.                                                                                                                 Cr.

Date

Particulars

J.F.

Amount Rs.

Date

Particulars 

J.F.

Amount Rs.

2014 Dec- 31

Machinery


72333

2014 Dec-31

Profit and loss


72333





72333

           




72333

           

2015 Dec- 31

Machinery


153000

         

2015 Dec-31

Profit and loss


153000





153000

          




153000


2016 Dec- 31

Machinery



181000

2016

Dec-31

Profit and loss


181000






181000

         




181000

           

2017

Dec-31

Machinery 


181000

2017 Dec-31

Profit and loss


181000




181000




181000

 

(b) Machinery A/c 

Date

Particular

Amount

Date

Particular

Amount

2014



2014



Jan-01

Bank (i)

600000

Dec-31

Balance c/d

970000


(550000+50000)



(i) 60000 (ii) 370000


Sep-01

Bank (ii) 

370000












970000



970000

2015

Jan-01

Balance b/d

970000

2015 Dec-31

Balance c/d

181000


(i) 600000 (ii) 370000



(i) 600000 (ii) 370000


May- 01

Bank (iii)

840000


(iii) 840000










1810000



181000













2016 Jan-01


Balance b/d

1810000

Dec-31

Balance c/d 

181000


(i) 600000 (ii) 370000 (iii) 840000



(i) 600000 (ii) 370000 (iii) 840000




1810000



181000













2017 Jan-01


Balance b/d

1403667

Dec-31

Depreciation



(i) 600000 (ii) 370000 (iii) 840000



(i) 600000 (ii) 370000 (iii) 840000
















1810000



1810000


Provision for Depreciation Account

Dr.                                                                                                                   Cr.

Date

Particulars

J.F.

Amount Rs.

Date

Particulars 

J.F.

Amount Rs.

2014 Dec- 31

Balance c/d


72333

2014 Dec-31

Depreciation


72333





72333

           




72333

           

2015 Dec- 31

Balance c/d


225333

         

2015 Jan-01

Balance b/d


72333






          

Dec-31

Depreciation


153000





225333




225333

2016 Dec- 31

Balance c/d



406333

2016

Jan- 01

Balance b/d


225333







         

Dec-31

Depreciation


181000

           




406333




406333

2017

Dec-31

Balance c/d 


587333

2017 Jan-01

Balance b/d


406333





Dec-31

Depreciation


181000




587333




587333


25. Azad Ltd. purchased furniture on October 01, 2014 for Rs 4,50,000. On March 01, 2015 it purchased another furniture for Rs 3,00,000. On July 01, 2016 it sold off the first furniture purchased in 2014 for Rs 2,25,000. Depreciation is provided at 15% p.a. on the 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 the furniture disposal account is opened.

Ans: 

Furniture A/c

Date

Particular

Amount

Date

Particular

Amount

2014 Oct-01

Bank (i)

450000

2015 Mar-31

Balance c/d

750000

2015 Mar-01

Bank (ii) 

300000






750000



750000

2015 Apr-01

Balance b/d

750000

2016 Mar-31

Balance c/d

750000



750000



750000

2016 Apr-01

Balance b/d

750000

2016 Jul-01

Furniture Disposal

450000




2017 Mar-31

Balance c/d

300000



750000



750000








Accumulated Depreciation A/c

Date

Particular

Amount

Date

Particular

Amount

2015 Mar-31

Balance 

37500

2015 Mar-31

Depreciation

37500



37500




2016 Mar-31

Balance c/d

144376

2015 Apr-01

Balance b/d

37500




2016 Mar-31

Depreciation

106876





(i) 62438 (ii) 44378




144376



144376

2016 Jul-01

Furniture Disposal

109456

2016 Apr-01

Balance b/d

144376

2017



Jul-01

Depreciation (i)

13268

Mar-31

Balance c/d

85960

2017 Mar-31

Depreciation (ii)

37772



195416



195416


Furniture Disposal A/c

Date

Particular

Amount

Date

Particular

Amount

2016 Jul-01

Furniture

450000

2016 Jul-01

Accumulated depreciation

109456




Jul-01

Bank

225000




Jul-01

Profit and loss (loss)

115544



450000



450000


Working Note:

Furniture (i) 

Years

Opening Balance - Depreciation

= Closing Balance

2014-15

450000 - 33750

= 416250

2015-16

416250 - 62438

= 353812

2016

33812 - 13268(3 months)

= 340544


109456


Balance on Jul 01, 2016

340544


Sale on Jul 01, 2016

225000


Loss on sale of furniture

Rs. 115544



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

Ans:

Machinery A/c

Date

Particular

Amount

Date

Particular

Amount

2011 Apr-01

Bank (i)

100000

2012 Mar-31

Depreciation

15000




Mar-31

Balance c/d

85000



100000



100000

2012 Apr-01

Balance b/d

85000

2013 Mar-31

Depreciation

43125

Jul-01

Bank (ii)

250000


(i) 15000 (ii) 28125





Mar-31

Balance c/d

291875





(i) 70000 (ii) 221875




335000



335000

2013 Apr-01

Balance b/d

291875

2014 Mar-31

Depreciation

52500


(i) 70000 (ii) 221875



(i) 15000 (ii) 37500





Mar-31

Balance c/d

239375





(i) 55000 (ii) 184375




291875



291875

2014 Apr-01

Balance b/d

239375

2015 Mar-31

Depreciation

52500


(i) 55000 (ii) 184375



(i) 15000 (ii) 37500





Mar-31

Balance c/d

186875





(i) 40000 (ii) 146875




239375



239375

2015 Apr-01

Balance b/d


186875

2015 Oct-01

Depreciation

7500


(i) 40000 (ii) 146875


Oct-01

Machinery Disposal 

32500




2016 Mar-31

Depreciation (ii)

37500




Mar-31

Balance c/d

109375



186875



186875


Machinery Disposal A/c

Date

Particular

Amount

Date

Particular

Amount

2015 



2015



Oct-01

Machinery

32500

Oct-01

Bank

25000




Oct-01

Profit and loss (loss)

7500



32500



32500


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

Machinery account on                        Rs 15,00,000 

Provision for depreciation account     Rs 5,50,000 

On April 01, 2015, machinery which was purchased on January 01, 2012, for Rs 2,00,000 was sold for Rs 75,000. A new machine was purchased on July 01, 2015, for Rs 6,00,000. Depreciation is provided on machinery at 20% p.a. on the 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.

Ans: 

Machinery A/c

Date

Particular

Amount

Date

Particular

Amount

2015 Jan-01

Balance b/d

1500000

2015 Apr-01

Machinery disposal

200000


(1300000+200000)


Dec-31

Balance c/d

1900000

Jul-01

Bank

600000






2100000



2100000








Provision for depreciation A/c

Date

Particular

Amount

Date

Particular

Amount

2015 Apr-01

Machinery Disposal

130000

2015 Jan-01

Balance b/d

550000

Apr-01

Balance c/d

750000

Apr-01

Depreciation

10000




Dec-31

Depreciation

32000





(i) 260000






(ii) 60000




880000



880000


Working Note: 

Machine sold on Jul 01, 2015

Years

Opening Balance - Depreciation

= Closing Balance

2012

200000 - 40000

= 160000

2013

160000 - 40000

= 120000

2014

120000 - 40000

= 80000

2015

80000 - 10000

= 70000

Accumulated Depreciation


= 130000

Balance on Jul 01, 2016

340544


Value on Apr 01, 2015

70000


Sale

75000


Profit on sale of furniture

Rs. 5000



Machinery Disposal A/c

Date

Particular

Amount

Date

Particular

Amount

2015 



2015



Apr-01

Machinery

200000

Apr-01

Prov. For depreciation

130000

Apr-01

Profit and loss (profit)

5000

Oct-01

Bank

75000



205000



205000


28. M/s. Excel Computers has a debit balance of Rs 50,000 (original cost Rs 1,20,000) in computers account on April 01, 2010. On July 01, 2010 it purchased another computer costing Rs 2,50,000. One more computer was purchased on January 01, 2011, for Rs 30,000. On April 01, 2014, the computer which has purchased on July 01, 2010, became obsolete and was sold for Rs 20,000. A new version of the IBM computer was purchased on August 01, 2014, for Rs 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 a straight-line method basis.

Ans:

Machinery A/c

Date

Particular

Amount

Date

Particular

Amount

2010 Apr-01

Balance b/d (i)

50000

2011 Mar-31

Depreciation

31500

Jul-01

Bank (ii) 

250000


(i) 12000 (ii) 18750 (iii) 750


2011 Jan-01

Bank (iii) 

30000

Mar-31

Balance c/d

298500





(i) 38000 (ii) 231250 (iii) 29250




330000




2011 Apr-01

Balance b/d

298500

Mar-31

Depreciation

40000


(i) 38000 (ii) 231250



(i) 12000 (ii) 25000



(iii) 29250



(iii) 3000





Mar-31

Balance c/d 

(i) 26000 (ii) 206250 (iii) 26250

258500



298500



298500

2012 Apr-01

Balance b/d

258500

2013 Mar-31

Depreciation

40000


(i) 26000 (ii) 206250 (iii) 26250



(i) 12000 (ii) 25000 (iii) 3000





Mar-31

Balance c/d

218500





(i) 14000 (ii) 181250 (iii) 23250




258500



258500

2013 Apr-01

Balance c/d

218500

2014 Mar-31

Depreciation

40000


(i) 14000 (ii) 181250 (iii) 23250



(i) 12000 (ii) 25000 (iii) 3000





Mar-1

Balance c/d






(i) 2000 (ii) 156250 (iii) 20250




218500



218500

2014 Apr-01

Balance c/d

178500

Apr -01

Bank (ii)

20000


(i) 2000 (ii) 156250 

(iii) 20250


Apr-01


2015

Profit and loss (loss)

136250

Aug -01

Bank (iv)

80000

Mar-31

Depreciation

10333





(i) 2000 (ii) 3000 (iii) 5333





Mar-31

Balance c/d

91917





(iii) 17250

(iv) 74667




258500



258500

 

29. Carriage Transport Company purchased 5 trucks at the cost of Rs 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 Rs 70,000 in full settlement of the claim. On the same date, the company purchased a second-hand truck for Rs 1,00,000 and spent Rs 20,000 on its overhauling. Prepare truck account and provision for depreciation account for the three years ended on December 31, 2013. Also, give a truck account if a truck disposal account is prepared.

Ans:

Truck A/c

Date

Particular

Amount

Date

Particular

Amount

2011 Apr-01

Bank

1000000

2011 Dec-31

Balance c/d

1000000


 

1000000



1000000

2012 Jan-01

Balance b/d

1000000

2012 Dec-31

Balance c/d

1000000



1000000



1000000

2013 Jan-01

Balance b/d

1000000

2013 Oct-01

Truck Disposal

200000

Oct-01

Bank

120000

Dec-31

Balance c/d

920000



1120000



1120000


Provision For Depreciation A/c

Date

Particular

Amount

Date

Particular

Amount

2011 Dec-31

Balance c/d