sandeep purchased a machinery for 21000 on 1 January 2001. the estimated life of the machine is 10 years after which its residual value will be 1000 only.find out the amount of depreciation and prepare machinery account for the first three years according to the fixed instalment method.
To calculate the amount of depreciation and prepare the machinery account using the fixed installment method, we first need to determine the annual depreciation expense.
Step 1: Calculate the depreciable cost of the machinery:
Depreciable Cost = Purchase Cost - Residual Value
Depreciable Cost = 21000 - 1000
Depreciable Cost = 20000
Step 2: Calculate the annual depreciation expense:
Annual Depreciation Expense = Depreciable Cost / Life of the Machinery
Annual Depreciation Expense = 20000 / 10
Annual Depreciation Expense = 2000
Now, let's prepare the machinery account for the first three years:
Machinery Account
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Year | Debit | Credit
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2001 | | 2000
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2002 | | 2000
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2003 | | 2000
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In the machinery account, we will record the depreciation expense under the "Credit" column for each year.
To calculate depreciation using the fixed installment method, we need to determine the annual depreciation expense based on the estimated life of the machinery and its residual value.
First, let's calculate the annual depreciation expense:
Depreciation Expense = (Cost of machinery - Residual Value) / Estimated Life of machinery
Depreciation Expense = (21,000 - 1,000) / 10
Depreciation Expense = 2,000
Now, let's prepare the machinery account for the first three years using the fixed installment method:
Machinery Account
Year | Opening Balance | Depreciation Expense | Closing Balance
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2001 | 21,000 | 2,000 | 19,000
2002 | 19,000 | 2,000 | 17,000
2003 | 17,000 | 2,000 | 15,000
The opening balance for the first year is the cost of the machinery, which is 21,000.
For each year, we subtract the depreciation expense of 2,000 from the opening balance to get the closing balance.
So, for the first three years, the amount of depreciation is $2,000 per year, and the machinery account would show a closing balance of $19,000 at the end of 2001, $17,000 at the end of 2002, and $15,000 at the end of 2003.