on july 1,2011 ,Ashok ltd. purchased a machine for Rs. 108000 and spent Rs . 12000 on its installation .At the time of purchase it is estimated that its working life is 12 years and after 12 years its salvage value will be Rs.12000. prepare machinery account and depreciation account for first three years by straight line method.
To prepare the Machinery Account and Depreciation Account using the straight-line method for the first three years, you need to calculate annual depreciation for each year.
The formula to calculate straight-line depreciation is:
Annual Depreciation Expense = (Cost of Asset - Salvage Value) / Useful Life
In this case:
Cost of Asset = Rs. 108,000 + Rs. 12,000 = Rs. 120,000
Salvage Value = Rs. 12,000
Useful Life = 12 years
Year 1:
Annual Depreciation Expense = (120,000 - 12,000) / 12 = Rs. 9,000
Year 2:
Annual Depreciation Expense = (120,000 - 12,000) / 12 = Rs. 9,000
Year 3:
Annual Depreciation Expense = (120,000 - 12,000) / 12 = Rs. 9,000
Now, let's prepare the Machinery Account and Depreciation Account for the first three years:
Machinery Account (Dr.)
Date Particulars Amount (Rs.)
----------------------------------------------------
1-Jul-2011 To Bank A/c 120,000 (being the purchase of machine)
Depreciation Account (Dr.)
Date Particulars Amount (Rs.)
----------------------------------------------------------
31-Dec-2011 To Machinery A/c 9,000 (being depreciation for Year 1)
Machinery Account (Dr.)
Date Particulars Amount (Rs.)
----------------------------------------------------
31-Dec-2011 By Depreciation A/c 9,000 (being depreciation for Year 1)
Depreciation Account (Dr.)
Date Particulars Amount (Rs.)
----------------------------------------------------------
31-Dec-2012 To Machinery A/c 9,000 (being depreciation for Year 2)
Machinery Account (Dr.)
Date Particulars Amount (Rs.)
----------------------------------------------------
31-Dec-2012 By Depreciation A/c 9,000 (being depreciation for Year 2)
Depreciation Account (Dr.)
Date Particulars Amount (Rs.)
----------------------------------------------------------
31-Dec-2013 To Machinery A/c 9,000 (being depreciation for Year 3)
Machinery Account (Dr.)
Date Particulars Amount (Rs.)
----------------------------------------------------
31-Dec-2013 By Depreciation A/c 9,000 (being depreciation for Year 3)
Note: The Machinery Account will have additional entries for other transactions related to the machine, such as repairs or disposal, if applicable. The above example only includes entries for the purchase and depreciation.
value to be depreciated: 108000-12000 = 96000
12 years to depreciate means 8000/year
see what you can do with that.