On 1st April, 2022, LMP Co. which depreciates its machinery @ 10% p.a. on diminishing balance method, had 9,72,000 to the debit of Machinery Amount...

Question

On 1st April, 2022, LMP Co. which depreciates its machinery @ 10% p.a. on diminishing balance method, had 9,72,000 to the debit of Machinery Amount. On 1st October, 2022, part of machinery purchased on 1st April, 2020 for 80,000 was sold for 45,000. Also, a new machinery at a cost of ₹ 1,50,000 was purchased on 1st October, 2022 and installed on the same date and installation charges being ₹ 8,000. The company changed the method of depreciation from diminishing balance method to straight line method with effect from 1st April, 2020 and adjusted the difference on 31st March, 2023. The rate of depreciation remains the same. Show the Machinery Account and ascertain the amount chargeable to Profit and Loss Account as depreciation in 2022-23. [June 2024, 8 Marks]

Accepted Answer

Answer Solution: Machinery Account | Date | Particulars | Amount (₹) | Date | Particulars | Amount (₹) | | :--- | :--- | ---: | :--- | :--- | ---: | | 2022-23 April 1 Oct 1 | To Balance b/d OLD To Bank A/c New [$1,50,000 + 8,000] | 9,72,000 1,58,000 | 2022-23 Oct 1st Mar 31 | By Depreciation A/c By Bank A/c By Profit & Loss A/c (2) By Profit & Loss A/c (3) (Additional Dep.) By Depreciation A/c:     OLD: 1,12,000     NEW: 7,900 By Balance c/d:     Old: 7,84,000     New: 1,50,100 | 4,000 45,000 15,000 12,000 1,19,900 9,34,100 | | | TOTAL | 11,30,000 | | TOTAL | 11,30,000 | Note: Above solution is based upon change of method with retrospective effect as per requirement of the question, however at present in depreciation accounting change of method is allowed on the basis of prospective effect only as per AS 10. Working Notes: 1. Calculation of WDV as on 1 April, 2020: 9,72,000 × 100/90 × 100/90 = Rs. 12,00,000. 2. Calculation of profit & loss on Sale of Machinery: | Particulars | Amount (₹) | | :--- | ---: | | Cost of Machine as on 1st April 2020 | 80,000 | | Less: Depreciation @ 10% SLM | (8,000) | | WDV as on 31st March, 2021 | 72,000 | | Less: Depreciation @ 10% SLM | (8,000) | | WDV as on 31st March, 2022 | 64,000 | | Less: Depreciation for 6 months | (4,000) | | WDV as on 1st Oct, 2022 | 60,000 | | Less: Sold | (45,000) | | Loss on Sale of Machinery | 15,000 | 3. Calculation of Depreciation for year 2022-23: - (a) On Machines (Other than sold one) existing as on 1st April, 2022 @ 10% on [Rs. 12,00,000 - 80,000] = 1,12,000 - (b) On Machine purchased on 1st Oct, 2022 @ 10% on (1,58,000 for 6 months) = 7,900 - Total: 1,19,900 4. Calculation of Difference in the amount of depreciation under old method and New Method on the Machineries: - (a) Depreciation on SLM basis for 2 years [12,00,000 x 10% x 2] = 2,40,000 - (b) Depreciation on W.D.V. basis for 2 years: - for 2020-21 on Rs. 12,00,000 = 1,20,000 - for 2021-22 on Rs. 10,80,000 = 1,08,000 - Total: 2,28,000 - (c) Difference to be adjusted (a - b) = Rs. 12,000

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