- Straight Line Method: -
Q1 Rahul & Co.
acquired a machine on 1st July, 2004 at a cost of Rs. 2, 10,000 and spent Rs.
20,000 on its installation. The company writes off depreciation at 10% of the
original cost every year. The books are closed on 31st December
every year. Show the Machinery Account and Depreciation Account for four years.
Hint: First year (2004) depreciation will be
charged for 6 months since the machinery was purchased on July 1.
Q2 On 1st
January, 2000, a Company purchased a plant for Rs. 1, 00,000. On 1st
July in the same year, it purchased additional plant worth Rs. 20,000 and
spent Rs. 5,000 on its erection. On 1st
July, 2002, the plant purchased on 1st Jan, 2000 has become
obsolete, is sold off for Rs. 72,000. On 1st October, 2003, fresh
plant was purchased for Rs. 60,000 and on the same date the plant purchased on
1st July, 2000 was sold for Rs. 15,000.
Depreciation
is provided at 10% per annum on Original Cost on 31st December every
year.
Show
the Plant Account from 2000 to 2003.
- Written Down Value Method: -
Q3 On 1st
April, 2000, Shyam Ltd. purchased a machinery for Rs. 3,90,000 on which they
spent Rs. 5,000 for carriage, Rs. 2,000 for brokerage of the middle-man, Rs.
2,500 for installation and Rs. 500 for an iron pad. On 1st November,
2001, they purchased another machinery for Rs. 1, 00,000 and immediately spent
Rs. 20,000 on its overhauling. On 30th September, 2002, the
machinery purchased in 2000 was sold at a loss of Rs. 1, 27,800. The company
charges depreciation @ 10% p.a. on written down value basis. Accounts are
closed on 31st March every year.
Prepare
Machinery Account up to 31st March, 2003.
Q4 A Company had
bought Machinery for Rs. 1, 50,000 including therein a boiler worth Rs. 10,000.
Depreciation was charged on Reducing Balance Method at the rate of 10% p.a for
the first five years and Machinery Account was credited accordingly. During the
fifth current year, the boiler became useless on account of damages to some of
its vital parts. The damaged boiler is sold for Rs. 2,000. Prepare the
Machinery Account for five years.
Q5 Geeta Limited
purchased plant for Rs. 1, 00,000 on 1st July 2002. Depreciation is
provided @ 10% p.a. on the Diminishing Balance Method. On 1st
October, 2004, one fourth of plant was found unsuitable and disposed off for
Rs. 15,000. On the same date a new plant at a cost of Rs. 15,000 was purchased.
Write up the Plant Account from 2002 to 2005. The accounts are closed on 31st
December each year.
Q6 On 1st
January, 2005, the Jagdesh Company purchased a truck for Rs. 10, 00,000. On 1st July,
2006 this truck was involved in an accident and was completely destroyed and
Rs. 8, 00,000 was received by a cheque from the Insurance Company in full
settlement on 1st October, 2006. On the same date i.e. 1st
July, 2006, another truck was purchased by the company for Rs. 12, 00,000.
The
company writes off 20% depreciation per annum under the Written down Value
Method. Prepare the Truck Account and Depreciation Account for 2005 to 2007
when books are closed on 31st March every year.
Method of Creating Depreciation: -
1. When Provision for Depreciation
Account is not maintained: -
Q7 X Ltd.
purchased on January 1st, 1998 a second hand plant for Rs. 6, 00,000
and immediately spent Rs. 80,000 for its overhauling and Rs. 20,000 for its
installation. On July 1st, 2001 the plant became obsolete and was
sold for Rs. 3, 00,000. Depreciation is provided at 10% p.a. on original cost
method. Accounts are closed each year on 31st December. Show the
necessary Ledger Accounts assuming that “Provisions for Depreciation Account”
is not maintained.
B:
-When Provision for Depreciation Account is maintained: -
Q8 Mohan and Company acquired
a machine for Rs. 1, 80,000 on October 01, 2003, and spent Rs 20,000 for its
installation. The firm writes-off depreciation at the rate of 10% on original
cost every year. Record necessary journal entries for the year 2003 and draw up
Machine Account and Depreciation Account and Provision for Depreciation Account
for first three years given that:
(i) The book of accounts
closes on March 31 every year; and
(ii) The firm charges
depreciation to asset account.
Q9
Sarita Enterprises acquired a printing machine for Rs. 80,000 on July 01, 2001
and spent Rs. 5,000 on its transport and installation. Another machine for Rs. 50,000 was purchased on January
01, 2003. Depreciation is charged at the rate of 20% on written down value.
Prepare Printing Machine account for the years ended on March, 31, 2002, 2003,
2004 and 2005.
Q10 On April 1, 1999, Z Ltd. purchased a
plant for Rs. 10, 00,000. On 1st October in the same year,
additional plant costing Rs. 2, 00,000 was purchased. On 1st
October, 2000 the plant purchased on 1st April 1999, having become
obsolete was sold off for Rs. 7, 65,000. On 1st July 2001, new plant
was purchased for Rs. 8, 00,000 and on the same date plant purchased on 1st
October 1999 was sold for Rs. 1, 80,000. The firm provides depreciation @ 10%
p.a. on original cost on 31st March every year.
You
are required to show (i) Plant Account, (ii) Depreciation Account, and (iii)
Provision for Depreciation Account for three accounting years ending 31st
March, 2002.
Disposal of Asset: -
Q11 On 1st July 2000, X Ltd. purchased a machinery for Rs.
10, 00,000. On 28th February 2002, a part of the machinery purchased
on 1st July, 2000 for Rs. 1, 00,000 was sold for Rs. 50,000. On the
same date a fresh machinery was purchased for Rs. 2,00,000. Depreciation was
provided at 20% p.a. on the written down value and the books are closed on 31st
December each year.
You are required to prepare
(i) Machinery Account (ii) Provision for Depreciation Account and (iii)
Machinery Disposal Account.
Q12 ABC Ltd. which depreciates its
machines @ 10% p.a. on the written down value method, provides you the
following information: -
Machinery A/c as on 1-1-2000 Rs. 8,00,000
Provision for Depreciation A/c as on
1-1-2000 Rs. 1,35,500
No Depreciation is charged in the year
of sale of machinery but full charge is being made for the years during which
the machinery is purchased.
On 1-7-2001, one new machinery was
purchased for Rs. 80,000 and old machinery purchased on 1-7-1998 for Rs. 60,000
was discarded but could not be sold immediately. However, it was expected to
realise Rs. 10,000. Prepare (i) Machinery Account, (ii) Provision for
Depreciation Account, and (iii) Machinery Disposal Account for the year 2000
and 2001.
THEORY QUESTIONS
SECTION A
Q1 Why
do we create provisions and reserves? Explain with examples.
Q2 What
is meant by the term “Provisions”?
Q3 Give
any three examples of provisions.
Q4 Provision
is a charge against the profits of the firm. Briefly describe the statement.
Q5 What
is the significance of creating provisions in the firm?
SECTION B
Q1 What
is meant by the term “Reserves”?
Q2 Give
any three examples of Reserves.
Q3 Provisions
are a charge against the profits whereas reserves are an appropriation of
profits. Explain the statement.
Q4 What
is the purpose of creating reserves?
Q5 Differentiate
between Provisions and Reserves. (Any 5 points)
Q6 Briefly
explain the types of reserves.
Q7 What
is meant by General reserve? State the objectives of creating general reserve.
Q8 What
is meant by Specific reserve? Briefly explain any 3 types of specific reserve.
Q9 State
any 3 types of Capital reserves.
Q10 Differentiate
between Revenue reserves and Capital reserves. (Any 3 points)
Q11 What
are secrets reserves and how do they get created?
Q12 Evaluate
whether the secret reserves should be created in the firm or not?
SECTION C
Q1 Explain
with example the Provision for doubtful debts?
Q2 While
preparing the Final Accounts on 31st December 2005, M/s AK firm made
a provision for doubtful debts equal to 10% on sundry debtors amounting to Rs
50,000. During 2006 bad debts amounted to Rs 3,000 and sundry debtors amounted
to Rs 60,000 with the same rate of provision to be maintained. Show the journal
entries and Bad debts, Provision for doubtful debts Account.
Q3 On
31.12.07 firm’s debtors amounted to Rs 1, 00,000 and its provision amounted to
Rs 8,000. It was decided to write off Rs 5,000 as bad debts and to carry
forward a provision of 10% of the debtors. Pass Journal entries and Provision
for doubt debts Account.
Q4 On
01.01.07 the Provision for doubtful Debts Account in the books of the firm
which maintains 10% had a credit
balance of Rs 2,000. During the year the bad debts amounted to Rs 1,000 and the
debtors were Rs 30,000. Pass Journal entries and prepare Provision for doubtful
debts account and bad debts account.
Q5 The
amount of sundry debtors in trial balance is Rs 1, 80,000. Write off Rs 10,000
as bad debts and make a
provision for doubtful debts @ 20% on sundry debtors. Pass necessary journal
entries.
SECTION D – Miscellaneous Questions
Q1 State
whether the following whether the following statements are true and false with reasons.
(a)
Provisions are maintained for meeting
the unknown liability.
(b)
Capital reserves are freely distributed
as profits.
(c)
A general reserve is created to meet
contingency liability.
(d)
Revenue reserves are created out of
revenue profits of the business.
(e)
Provision is a charge against profits
(f)
The amount of provisions can be
invested in the securities outside the business.
(g)
Secret reserves are disclosed in the
Balance Sheet.
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