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

## 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.

• 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 28,0002,72,00            0 3,00,00           0 3,00,00             0 2011 Apr. 01 Balance b/d 2,72,00           0 2012 Mar.31Mar.31 Depreciation on Balance c/d 28,0002,44,00            0 2,72,00           0 2,72,00             0 2012 Apr. 01 Balance b/d 2,44,00           0 2013 Mar.31Mar. 31 Depreciation on Balance c/d 28,0002,16,00            0 2,44,00           0 2,44,00             0 2013 Apr. 01 Balance b/d 2,16,00           0 2014 Mar.31Mar.31 Depreciation on Balance c/d 28,0001,88,00            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.31Mar.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.31Mar. 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.31Mar.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 2012Mar.31 Balance c/dDepreciation on 28,000        28,000 56,000 56,000 2013 Mar. 31 Balance c/d 84,000 2012 Mar.312013 Mar. 31 Balance c/dDepreciation on 56,000           28,000 84,000 84,000            0 2014 Apr. 01 Balance c/d 1,12,00           0 2003 Apr.01 2014Mar.31 Balance b/dDepreciation 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 DepreciationBalance c/d 4500115500 12,000 120000 2011 Jan-01 Balance b/d 115500 2011 Dec-31 DepreciationBalance c/d 9000        106500 115500 115500 2012 Jan-01 Balance b/d 106500 2012 Dec-31 DepreciationBalance 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-01Dec-31 Balance c/dDepreciation 1316 5267 6583 6583 2013 Dec-31 Balance c/d 11850 2013 Jan-01Dec- 31 Balance c/dDepreciation 65835267 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 2017Dec-31 Profit and loss 34500 34500 34500 2018Dec-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 2017Dec-31 Profit and loss 32401 32401 32401 2018Dec-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 2015Jan-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 2016Dec-31 Profit and loss 181000 181000 181000 2017Dec-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 2015Jan-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 2016Jan- 01 Balance b/d 225333 Dec-31 Depreciation 181000 406333 406333 2017Dec-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-012015 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