Prof.

Bhambwani’s
RELIABLE CLASSES / C.A.F.C. / ACCOUNTS / DEPRECIATION

DEPRECIATION

Lecture 1, 2 & 3: Theory

Lecture 4:
On 1st April, 1985 M/s. K & Co. purchased a machinery costing Rs.85,000. The freight,
transit insurance and installation expenses amounted to Rs.15,000.
On 31-12-1985, the company purchased another machinery costing Rs.47,000 and
installed the same at the cost of Rs.3,000. On 1-10-1987, the first machinery was totally
damaged due to flood water in the factory. Scrap was taken over by the insurance
company and the claim of Rs.40,000 was admitted. On the same day, a secondhand
machinery was purchased for Rs.1,10,000, the same was immediately repaired for
Rs.40,000. The company provides 20% depreciation on S.L.M on 31st Dec. every year.
Pass journal entries in the books of the company.

Lecture 5:
A company writes off 10% of the original cost of Plant & Machinery in every year till the
whole cost of a particular piece of machinery is wiped off. Full depreciation is written off
even if the machinery is in use for part of a year. Accounts are made upto 31st
December.
On 1-1-1969, the balance in the Plant and machinery A/c. was Rs.1,95,150. The original
cost of various items in use was as follows
Items bought in 1958 or earlier 58,000
Items bought in 1959 31,000
Items bought in 1960 17,000
Items bought in 1961 or later 2,52,000
3,58,000
During 1969 new Plant was bought at a cost of Rs.29,500 and one machine which has
cost Rs.5,500 in 1954 was sold for Rs.350. During 1970 there were additions costing
Rs.18,000 and a machine which has a cost Rs.7,000 in 1962 was sold for Rs.1,500
Write up the Plant and machinery A/c. for 1969 and 1970.

Lecture 6:
In the Books of M/s. Aakruti Associates, there was a Plant & Machinery of Rs.90,000 on
1st Jan., 1987 including Rs.10,000 which was purchased on 1st Jan., 1986. On 30th Jan.,
1987 additional plant was purchased for Rs.10,000.
On 31st Dec., 1987 part of the plant was sold for Rs.2,100 which has cost Rs.2,000 on
1st Jan., 1986.
On 31st December, 1988 again a part of the plant was sold for Rs. 4,000. This was
purchased on 1st January, 1986 for Rs. 6,000.
Prepare plant and machinery a/c. for 2 years namely 1987 and 1988 by providing
depreciation at 10% p.a. on Reducing balance method.

Lecture 7:
A machine was purchased for Rs.3,00,000 having an estimated total working of 24,000
hours. The scrap value is expected to be Rs.20,000 and anticipated pattern of
distribution of effective hours is as follows:
Year
1-3 3,000 hours per year
4-6 2,600 hours per year
7-10 1,800 hours per year
Determine Annual Depreciation under Machine Hour Rate Method.

Lecture 8:
A machine is purchased for Rs.2,00,000. Its estimated useful life is 10 years with a
residual value of Rs.20,000. The machine is expected to produce 1.5 lakh units during
its life time. Expected distribution pattern of production is as follows:
Year Production
1-3 20,000 units per year
4-7 15,000 units per year
8-10 10,000 units per year
Determine the value of depreciation for each year using production units method.

Lecture 9:

50
 Prof. Bhambwani’s
RELIABLE CLASSES / C.A.F.C. / ACCOUNTS / DEPRECIATION

M/s Jay & Co. took lease of a quarry on 1-1-2003 for Rs.1,00,00,000. As per technical
estimate the total quantity of mineral deposit is 2,00,000 tonnes. Depreciation was
charged on the basis of depletion method. Extraction pattern is given in the following
table:
Year Quantity of Mineral extracted
2003 2,000 tonnes
2004 10,000 tonnes
2005 15,000 tonnes
Show the Quarry Lease Account and Depreciation Account for each year from 2003 to 2005.

Lecture 10:
An asset is purchased for Rs.1,00,000 with a residual value of Rs.4,000 after a life of 6
years. Depreciation is provided under sum of years digit method. Calculate depreciation
for all 6 years and written down value at the end of each year.

Lecture 11:
A Machine costing Rs. 6,00,000 is depreciated on straight line basis, assuming 10 years working life
and Nil residual value, for three years. The estimate of remaining useful life after third year was
reassessed at 5 years.
Required: Calculate depreciation for the fourth year.

Lecture 12:
A machine of cost Rs.12,00,000 is depreciated straight-line assuming 10 year working life and zero
residual value for three years. At the end of third year, the machine was revalued upwards by Rs.
60,000 the remaining useful life was reassessed at 9 years.
Required
Calculate depreciation for the fourth year.

Lecture 13: Theory

Lecture 14:
M/s. Vishal Electronics company commenced business on 1st Jan., 1985 and depreciated
its machinery at the rate of 10% p.a. on S.L.M. As on 1st Jan.,1988, Machinery A/c shows
a balance of Rs.97,400.
On 1st Jan., 1988, the machinery purchased on 1st Jan., 1986 for Rs.8,000 was sold for
Rs.4,800 and new machinery costing Rs.20,000 was purchased and installed at an
expense of Rs.1,500.
The directors of the company decided on 31st Dec.,1988 to change the method of
depreciation from straight line to diminishing balance method with effect from 1st Jan.,
1985 the rate of depreciation remaining the same.
Show Machinery A/c as it would appear in the ledger of the company for the year ending
31st December, 1988.

Lecture 15: Theory

Lecture 16:
M/s. Vaibhav Enterprises purchased a machinery for Rs.40,000 on 1st July,1986.
Depreciation is provided @ 10% p.a. on D.B.M. On 1st Oct., 1988, one fourth of the
machinery was found unsuitable and disposed off for Rs.5,600. On the same date new
Machinery at a cost of Rs.15,000 was purchased. Write up machinery a/c, Provision for
Depreciation Account for the years 1986 to 1988. The accounts being closed on every
31st December.

Lecture 17:
A firm’s plant and machinery account at 31st December, 2015 and the corresponding
depreciation provision account, broken down by year of purchase are as follows:
Year of Purchase Plant and Machinery at cost Depreciation Provision
Rs. Rs.
1998 2,00,000 2,00,000

51
 Prof. Bhambwani’s
RELIABLE CLASSES / C.A.F.C. / ACCOUNTS / DEPRECIATION

2004 3,00,000 3,00,000

2005 10,00,000 9,50,000
2006 7,00,000 5,95,000
2013 5,00,000 75,000
2014 3,00,000 15,000
30,00,000 21,35,000

Depreciation is at the rate of 10% per annum on cost. It is the Company’s policy to
assume that all purchases, sales or disposal of plant occurred on 30th June in the
relevant year for the purpose of calculating depreciation, irrespective of the precise date
on which these events occurred.

During 2015 the following transactions took place:

1. Purchase of plant and machinery amounted to Rs. 15,00,000
2. Plant that had been bought in 2004 for Rs. 170,000 was scrapped.
3. Plant that had been bought in 2005 for Rs. 90,000 was sold for Rs. 5,000.
4. Plant that had been bought in 2006 for Rs. 2,40,000 was sold for Rs. 15,000
You are required to:
Calculate the provision for depreciation of plant and machinery for the year ended 31st
December, 2015. In calculating this provision you should bear in mind that it is the
company’s policy to show any profit or loss on the sale or disposal of plant as a
completely separate item in the Profit and Loss Account. You are also required to prepare
the following ledger accounts during 2015.
(i) Plant and machinery at cost;
(ii) Depreciation provision;
(iii) Sales or disposal of plant and machinery.

Lecture 18: Theory

Lecture 19:
On 1-1-1985, Raj acquired for Rs.3,00,000 the lease of some factory premises of which
5 years were unexpired. To amortise the lease over 5 years and to provide for renewal,
it was decided to set up a sinking fund by taking annual installments out of profits and
investing cash of the same amount at 5% compound interest.
Taking Re.0.180975 as annual contribution required to produce Re.1 in 5 years at 5%,
write up necessary accounts under sinking fund method for the entire period of 5 years
assuming sinking fund investments were sold at the end of 5 th year for Rs.234000.

Lecture 20: Theory

A lease was purchased on 1.4.1998 for a five year at a cost of Rs.50,000. It is proposed
to depreciate the lease by annuity method charging 5% interest. Show the lease
account for 5 years and also the relevant entries in the Profit and Loss Account. The
reference to the annuity table shows that to depreciate Re.1 by annuity method over 5
years by charging interest at 5% one must write off a sum of Re.0.230975 every year.

Lecture 21:
The following particulars are available from the books of a public company having a large
fleet of vehicles:
Rs.
Balance in Provision for Repairs and Renewals Account as on 31.3.2016 11,50,000
Actual repairs charged/incurred during the year ended 31.3.2016 7,50,000
Actual repairs charged/incurred during the year ended 31.3.2017 3,20,000

52
 Prof. Bhambwani’s
RELIABLE CLASSES / C.A.F.C. / ACCOUNTS / DEPRECIATION

31.3.2017 The company makes an annual provision of Rs. 4,00,000 on repairs

and renewals.
Required
Draw up the Provision for Repairs and Renewals Account for the years 2015-2016
and 2016-2017.

53