Question

Shubhangi Trading Company of Dombivli purchased Machinery for ₹ 86,000 on 1st January 2016 and immediately spent ₹ 4,000 on its fixation and erection. On 1st October 2016 additional Machinery costing ₹ 40,000 was purchased.

On 1st October 2017, the Machinery purchased on 1st January 2016 became obsolete and was sold for ₹ 70,000. On 1st July 2017, a new Machine was also purchased for ₹ 45,000.

Depreciation was provided annually on 31st March at the rate of 12% per annum on the fixed installment method.

Prepare Machinery Account for three years and pass Journal Entries for the Third year i.e. 2017-2018.

Answer 1

In the books of Shubhangi Trading company, Dombivli.

Journal of Shubhangi Trading Company

Working Note:

Calculation of Profit or loss on sale of machine:

Original cost on 01.01.2016 = ₹ 90,000

Less: Depreciation for 2015-16 (3 months) = ₹ 2,700

W.D.V. on 01-04-2016 = ₹ 87,300

Less: Depreciation for 2016-17 (12 months) = ₹ 10,800

W.D.V. on 01.04.2017 = ₹ 76,500

Less: Depreciation for 2017-18 (6 months) = ₹ 5,400

W.D.V. on date of sale = 71,100

Less: Selling price = 70,000

∴ Loss on sale of machine = ₹ 1,100