DEPRECIATION

1. What is Depreciation?

2. Depreciation provides money for repairs of asset. Is it true?

3. An asset can be obsolete while it is not fully depreciated. Comment.

4. State briefly the need for providing depreciation.

5. Explain the determinants of the amount of depreciation.

6. A company has incurred losses in the current year and has not been provided for depreciation. Is the action of company correct.

7. Depreciation is a non-cash expense which should not be provided for in the profit and loss account. Comment.

SECTION-B

PRACTICAL PROBLEMS

1. A trader purchased a machine for Rs.20,0000 on January 1,2015 and paid a freight of Rs.2,000 and also spent  Rs.1,000 on its installation in the factory. Depreciation is written off @10% p.a. on Straight Line Method every year on December 31.

Prepare Machine Account and Depreciation Account upto December 31, 2017.

2. A businessman purchased a machine for Rs.12,00,000 on January 1,2011. He purchased another machine for Rs.60,000 on July 1, 2011. He further expanded his business and bought another machine costing Rs.40,000 on Oct 1,2012. He charges depreciation @10%p.a. on Straight line Method. Prepare the Machine Account and Depreciation upto December 31,2012.

3. A machine was purchased for Rs.60,000 on January 1,2009 with a useful life of 3 years and scrap value of 10 % of cost. Another machine was purchased for Rs.80,000on October 1,2010 with  a useful life of 4 years and scrap value of 8% of cost. Prepare machine account upto December31, 2011. Straight line method of depreciation is used.

4. A company purchased a plant on July 1,2009 for Rs.60,000. It purchased another plant for Rs.4,00,000 on Oct 1,2010. On March 31,2011 it sold its first plant for Rs.3,50,000 and on the same date bought another plant for Rs.5,00,000. Depreciation is provided at the rate of 20% on original cost.

Prepare Pant Account upto December 31,2011.   

5.A company bought a machine for Rs.70,000 on September 30, 2011. It decided to depreciate the machine at 10% on Written Down Value Method . Prepare the Machine account upto December 31,2013.

6. A company purchased a plant for Rs.40,000 on January 1, 2009. It purchased another plant on April 1, 2010 for Rs.24,000. On September 1,2011 the plant purchased on January 1,2009 was sold for Rs. 30,000. A new plant was purchased for Rs.27,000 on same date.

The company charged depreciation at 10% on Diminishing Balance Method. Prepare Plant Account upto December 31, 2011.

7. A company purchased a machine on January 1,2009 for Rs.3,00,000. On April 1,2011 a part of machine costing Rs.20,000 was sold for Rs.11,800 and a new machine costing Rs.40,000 was purchased on the same date. The company was charging depreciation at 10% p.a.

Show machine Account, Depreciation Provision Account and Machine Disposal Account according to

                                i. Straight Line Method

                                ii. Diminishing Balance Method

8. Bansal Construction Ltd purchased a machine on 1st October,2010 for Rs.6,55,000. On 1st March,2011, it purchased another machine for Rs.2,40,000. On 1st July 2012 it sold off the first machine purchased in 2010 for Rs.5,24,000. Accumulated depreciation account is maintained charging depreciation at 10% per annum on straight line method. Accounts are closed each year on 31st March,2011, 2012 and 2013. Also prepare machinery disposal account.

9. Modi industries purchased 10 machines for Rs.2,25,000 each on 1st July,2010. On 1st October,2012 one of the machines got destroyed by fire and an insurance claim of Rs.1,35,000 was admitted by the company. On the same date, another machine is purchased by the company for Rs. 3,75,000.

The company writes off 15% per annum depreciation on written down value method. The company maintains the calendar year as its financial year. Prepare the machinery account from 2010 to 2013.

10.On 1st  April,2011 Prerna Ltd. purchased a second hand machine for Rs.1,16,000 and spent Rs.4000 on its erection. On 1st October,2013 this machine was sold for Rs.57,200. Prepare the machinery account for first three years according to written down value method taking rate of depreciation at 10% per annum. Accounts are closed on 31st March every year.