Get answers to your depreciation questions and learn how to prepare a machinery account using the reducing balance method.
Q3 Depreciation Questions and Answers: All You Need to Know
Questions 1:
On 1st July 1990, a company purchased a machine for rupees 20000. After that, on 1st January 1991, the second machine was purchased for rupees 12000. On 1st April 1992, the first machine purchased on 1st July 1990 was sold for rupees 16500 and a new machine was purchased on the same day for rupees 10000. Prepare Machinery Account for three years after providing depreciation by Reducing the Balance Method to 10 percent per annum.
Solution:
Machinery Account
Depreciation by Reducing the Balance Method at 10% per annum
| Date | Particulars | Amount (₹) | Date | Particulars | Amount (₹) |
|---|---|---|---|---|---|
| 1990 | 1990 | ||||
| 1st July | To Bank (Purchased) | 20,000 | 31st Dec | By Depreciation (10%) | 1,000 |
| 1991 | 1991 | ||||
| 1st Jan | To Bank (Purchased) | 12,000 | 31st Dec | By Depreciation (10% on 20,000) | 2,000 |
| 31st Dec | By Depreciation (10% on 12,000) | 1,200 | |||
| 1992 | 1992 | ||||
| 1st April | By Bank (Sale- 1st machine) | 16,500 | 1st April | By Depreciation (10% on 20,000 for 3M) | 500 |
| 1st April | To Bank (Purchased) | 10,000 | |||
| 31st Dec | By Depreciation (10% on 9,000) | 900 | 31st Dec | By Depreciation (10% on 12,000) | 1,080 |
| 31st Dec | By Depreciation (10% on 10,000) for 9M | 750 |
Depreciation Summary:
- 1990: ₹1,000 (10% on ₹20,000 for 6 months)
- 1991: ₹3,200 (10% on ₹20,000 + 10% on ₹12,000)
- 1992: ₹3,230
The final balance in the Machinery Account includes the original values minus the depreciation calculated each year using the Reducing Balance Method.
Question 2:
On 1st January 2018, a company purchased a machine for $15,000. On 1st July 2020, the machine was sold for $7,000. Prepare the Machinery Account for 2018, 2019, and 2020 after providing depreciation by the Straight-Line Method at 15 percent per annum.
Solution:
Machinery Account
Depreciation by Straight-Line Method at 15% per annum
| Date | Particulars | Amount ($) |
|---|---|---|
| 2018 | ||
| 1st Jan | To Bank (Purchased) | 15,000 |
| 31st Dec | By Depreciation (15%) | 2,250 |
| 2019 | ||
| 31st Dec | By Depreciation (15%) | 2,250 |
| 2020 | ||
| 1st July | By Bank (Sale) | 7,000 |
| 1st July | By Depreciation (6M of 15%) | 1,125 |
Depreciation Summary:
- 2018: $2,250 (15% on $15,000)
- 2019: $2,250 (15% on $15,000)
- 2020: $1,125 (15% on $15,000 for 6 months)
The amount recovered from the sale is entered into the Machinery Account, and depreciation is calculated each year on a straight-line basis.
Question 3:
On 1st February 2017, a business purchased machinery for €20,000. On 1st February 2018, additional machinery was bought for €10,000. On 1st October 2019, the first machine was sold for €12,000. Prepare the Machinery Account for 2017, 2018, and 2019 after providing 10 percent per annum depreciation using the Reducing Balance Method.
Solution:
Machinery Account
Depreciation by Reducing the Balance Method at 10% per annum
| Date | Particulars | Amount (€) |
|---|---|---|
| 2017 | ||
| 1st Feb | To Bank (Purchased) | 20,000 |
| 31st Dec | By Depreciation (10% on €20,000) | 1,833.33 |
| 2018 | ||
| 1st Feb | To Bank (Purchased) | 10,000 |
| 31st Dec | By Depreciation (10% on €18,166.67) | 1,816.67 |
| By Depreciation (10% on €10,000) | 1,000 | |
| 2019 | ||
| 1st Oct | By Bank (Sale – 1st machine) | 12,000 |
| 1st Oct | By Depreciation (10% on €18,166.67) for 9 months | 1,362.50 |
| 31st Dec | By Depreciation (10% on €10,000) | 1,000 |
Depreciation Summary:
- 2017: €1,833.33 (10% on €20,000 for 11 months)
- 2018: €2,816.67 (10% on €18,166.67 + 10% on €10,000)
- 2019: €2,362.50 (10% on €18,166.67 for 9 months + 10% on €10,000)
These entries show the annual depreciation and the balance after accounting for the sale of the machine.