Question

On 1^st January 2004, a company bought Plant and Machinery costing ₹45,000 and spent ₹5000 on its erection. Addition is made on 1^st July 2006 for the value of ₹20,000. Depreciation is provided @ 10% p.a. Prepare plant and machinery account for 4 years under: 

1. Fixed Instalment system 

2. Diminishing Balance method

Answer 1

1. Fixed Instalment method

Dr.					Cr.
Date	Particulars	Amount	Date	Particulars	Amount
1/1/2004	Cash (45000 + 5000)	50000	31/12/04	Depreciation Balance c/d	5000 45000
		50000			50000
1/1/2005	Balance b/d	45000	31/12/2005	Depreciation Balance c/d	5000 40000
		45000			45000
1/1/2006	Balance b/d cash	40000 20000	31/12/06	Depreciation (5000 + 1000) Balance c/d	6000 54000
		60000			60000
1/1/2007	Balance b/d	54000	31/12/07	Depreciation (5000 + 2000) Balance c/d	7000 47000
		54000			54000
1/1/08	Balance b/d	47000

Note:

Depreciation on 31.12.04 = 50000 x 10/100 = 5000

Depreciation on 31.12.06 = 20000 x 10/100 x 6/12

= 1000 + 50000 = 6000

Depreciation on 31.12.07 = 20000 x 10/100

= 2000 + 5000 = 7000

2. Diminishing Balance Method

Dr					Cr
Date	Particulars	Amount	Date	Particulars	Amount
1/1/2004	Cash (45000 + 5000)	50000	31/12/2004	Depreciation Balance c/d	5000 45000
		50000			50000
1/1/2005	Balance b/d	45000	31/12/2005	Depreciation (45000 x 10/100) Balance c/d	4500 40500
		45000			45000
1/1/2006	Balance b/d Cash	40500 20000	31/12/2006	Depreciation (40500 x 10/100 + 20000 x 10/100 x 6/12) Balance c/d	5050 55450
		60500			60500
1/1/2007	Balance b/d	55450	31/12/07	Depreciation (55450 x 10/100) Balance c/d	5545 49905
		55450			55450
1/1/08	Balance b/d	49905