Question

A Company had bought machinery for Rs 2,00,000 including a boiler for Rs 20,000. The Machinery Account had been credited for Depreciation on the Reducing Instalment System for the past four years at the rate `10%.` During the fifth year, i.e., the present year, the boiler became usefless on account of damage to some of its vital parts and the damaged boiler is sold for Rs 4,000. Write up the Machinery Account.

Answer 1

1. `{:("Calculation of Loss on Sale of Boiler: ",₹),("On of Boiler","20,000"),("Less: Depreciation for 4 years (Rs 2,000+ Rs 1,800 + Rs 1,620 + Rs 1,458) " ,"6,878"),("Book value in the beginning of 5th year","13,122"),("Less: Sale proceeds ","4,000"),("Loss on Sale of Boiler ","9,122"):}`
It is assumed that in the beginning of the 5th year boiler became useless on account of damage to some of its vital parts.
2. Calculation of Depreciation for 5th year:
Balance of remaining machinery (Book Value) in the beginning of 5th year
= Rs 1,31,220-Rs 13,122 (Book Value of Boiler) = Rs 1,18,098
Hence, Ddepreciation for the 5th year `"@ " 10%`= Rs 11,810 (to the nearest rupee).