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Depreciation | Debit Balance of Asset | Purchase Value of Asset | SLM

Arjun EP

Published on: April 27, 2021

Debit Balance of Asset

Asset has always debit balance and it is recorded in asset side of balance sheet.

Sometimes, there may be debit balance of fixed asset in the question.

It means asset has already purchased and some depreciation has already deducted.

Debit Balance of Asset and Purchase Value of Asset

From debit balance of an asset, sometimes the purchase value of an asset may be asked to find out.

While finding out purchase value of an asset, we should careful about depreciation methods and time period.

PROBLEM: 4A

EP Online Study has following transactions related to equipment (computer and laptop):

1 Jan 2018: Debit balance of laptop Rs 40,000.

1 April 2018: Desktop purchased of Rs 60,000.

30 Sep 2019: Due to slow processing, laptop was sold for Rs 15,000.

1 Oct 2019: New laptop was purchased for Rs 90,000.

The firm uses calendar year for accounting close and uses on FIM at 20% p.a. for depreciation

Required: Equipment account for first three years

[Answer: Depⁿ: in 2018 (8,000 + 9,000) = Rs 17,000;

In 2019 (6,000 sold + 12,000 + 4,500);

In 2020 (12,000 + 18,000) = Rs 30,000;

Loss (26,000 – 13,500) = Rs 12,500;

Balance on 31 Dec 2020 = Rs 94,500]

SOLUTION

Depreciation @ 20% under FIM

Details	Date			Assets
				E1 = 40,000		E2 = 60,000		E3 = 90,000
Book value/Purchase	1 Jan	1 Apr	2018	40,000		60,000
Depreciation	31 Dec		2018	8,000		9,000	(9m)
BV/PV	1 Jan	1 Oct	2019	32,000		51,000		90,000
Depreciation	31 Dec		2019	6,000	(9m)	12,000		4,500	(3m)
BV	1 Jan		2020	26,000*		39,000		85,500
Depreciation	31 Dec		2020			12,000		18,000
Balance	1 Jan		2021			27,000		67,500

Loss = BSV – CSV = 26,000* – 13,500 = 12,500

Plant Account

For 31^st December

Date	Particulars	Amount	Date	Particulars	Amount
2018			2018
1 Jan	To Balance b/d (E1)	40,000	31 Dec	By Depn account (E1+E2)	17,000
1 Apr	To Bank account (E2)	60,000	31 Dec	By Balance c/d	83,000
		100,000			100,000
2019			2019
1 Jan	To Balance b/d	83,000	30 Sep	By Bank account (sold)	13,500
1 Oct	To Bank account (E3)	90,000	30 Sep	By Depn account (on sold)	6,000
			30 Sep	By P&L account (loss)	12,500
			31 Dec	By Depn account (E2+E3)	16,500
			31 Dec	By Balance c/d	124,500
		173,000			173,000
2020			2020
1 Jan	To Balance b/d	124,500	31 Dec	By Depn account (E2+E3)	30,000
			31 Dec	By Balance c/d	94,500
		124,500			124,500

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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 4B

Plants account of an industry has debit balance Rs 340,000 on 1^st January 2019. The four plants were purchased on 1^st July 2017 of equal value. Depreciation of 10% per annum was charged on original cost.

The industry has sold one plant for Rs 72,000 on 30^th June 2019. The industry has been using calendar year for accounts close.

Required: (a) Purchase value of plant; (b) Plant account for 2017 − 2019

[Answer: Purchase value = 400,000;

Depn in 2017 = Rs 20,000; Depn in 2018 = Rs 40,000;

In 2019 depreciation = (5,000 sold + 30,000);

Loss on sale (80,000 – 72,000) = Rs 8,000;

Balance on 31 Dec 2020 = 225,000]

* PV (340,000 x 100/85) = Rs 400,000]

SOLUTION

Purchase value of plant on 1 July 2017

= Debit balance x [100 ÷ (100 – Rate – Rate – Rate)]

= 340,000 x [100 ÷ (100 – 10 – 5*)] [∵ 10% for 12 month; 5%* for 6 months]

= 340,000 x 100/85

= Rs 400,000

Value of one plant = 400,000 ÷ 4 = Rs 100,000

Depreciation @ 10% under SLM

Details	Date		Assets
			P1+ P2+ P3		P4 = 100,000
Purchase	1 Jul	2017	300,000		100,000
Depreciation	31 Dec	2017	15,000	(6m)	5,000	(6m)
Balance	1 Jan	2018	285,000		95,000
Depreciation	31 Dec	2018	30,000		10,000
Balance	1 Jan	2019	255,000*		85,000*
Depreciation	31 Dec	2019	30,000		5,000	(6m)
Balance	1 Jan	2020	225,000		80,000¹

Loss = BSV – CSV = 80,000¹ – 72,000 = 8,000³

Plant Account

For 31^st December

Date	Particulars	Amount	Date	Particulars	Amount
2017			2017
1 Jan	To Bank account	400,000	31 Dec	By Depn account	20,000
			31 Dec	By Balance c/d	380,000
		400,000			400,000
2018			2018
1 Jan	To Balance b/d	380,000	31 Dec	By Depn account	40,000
			31 Dec	By Balance c/d	340,000
		380,000			380,000
2019			2019
1 Jan	To Balance b/d	340,000*	30 Jun	By Bank A/c [sold]	72,000
			30 Jun	By Depn A/c [on sales]	5,000
			30 Jun	By P & L A/c [Loss]	8,000³
			31 Dec	By Depn account	30,000
			31 Dec	By Balance c/d	225,000
		340,000			340,000

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 4C

EP Online Media has debit balance of three computers of equal value for Rs 240,000 on 1^st January 2020. These computers were purchased on 1^st January 2018. Depreciation of 10% per annum was charged on original cost.

Due to slow processing, firm has sold one computer for Rs 32,000 on 30^th April 2020. On next day, new computer is purchased for Rs 150,000. The firm uses calendar year for accounts close.

Required: (a) Purchase value of computers; (b) Computer account for 2018 − 2020

[Answer: Purchase value = 300,000;

Depn in 2017 (20,000 + 10,000) = Rs 30,000;

Depn in 2018 (20,000 + 10,000) = Rs 30,000;

In 2019 depreciation = (20,000 + 3,333 sold + 8,000);

Loss (76,667 – 32,000) = Rs 44,667;

Balance on 31 Dec 2020 = 252,000]

* PV (240,000 x 100/80) = Rs 300,000]

SOLUTION

Purchase value of plant on 1 July 2018

= Debit balance x [100 ÷ (100 – Rate – Rate – Rate)]

= 240,000 x [100 ÷ (100 – 10 – 10)]

= 240,000 x 100/80

= Rs 300,000

Value of one computer = 300,000 ÷ 3 = Rs 100,000

Depreciation @ 10% under SLM

Details	Date			Assets
	Old	New		Computer 1+2	Computer 3			Computer 4
Purchase	1 Jul		2018	200,000		100,000
Depreciation	31 Dec		2018	20,000		10,000
Balance	1 Jan		2019	180,000		90,000
Depreciation	31 Dec		2019	20,000		10,000
Balance	1 Jan		2020	160,000*		80,000*		120,000
Depreciation	31 Dec		2020	20,000		3,333	(4m)	8,000	(8m)
Balance	1 Jan		2021	140,000		76,667^#		112,000

Loss = BSV – CSV = 76,667^# – 32,000 = 44,667

Computer Account

For 31^st December

Date	Particulars	Amount	Date	Particulars	Amount
2017			2017
1 Jan	To Bank A/c (C1+C2+C3)	300,000	31 Dec	By Depn account	30,000
			31 Dec	By Balance c/d	270,000
		300,000			300,000
2018			2018
1 Jan	To Balance b/d	270,000	31 Dec	By Depn account	30,000
			31 Dec	By Balance c/d	240,000
		270,000			270,000
2019			2019
1 Jan	To Balance b/d	240,000*	30 Apr	By Bank A/c [sold]	32,000
1 May	To Bank account (C4)	120,000	30 Apr	By Depn A/c [on sales]	3,333
			30 Apr	By P & L A/c [Loss]	44,667
			31 Dec	By Depn A/c [C1+C2+C4]	28,000
			31 Dec	By Balance c/d	252,000
		360,000			360,000

#####

PROBLEMS AND ANSWERS OF DEPRECIATION

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 4A

EP Online Study has following transactions related to furniture:

1 Jan 2018: Debit balance of furniture account Rs 40,000.

1 Oct 2019: New furniture purchased of Rs 30,000.

30 Sep 2020: First furniture was sold for Rs 5,300; next day new furniture purchased for Rs 60,000.

The firm uses calendar year for accounting close and uses on OCM at 20% p.a. for depreciation

Required: Equipment account for first three years

[Answer: Depⁿ: in 2018 Rs 8,000;

In 2019 (8,000 + 1,500) = Rs 9,500;

In 2020 (6,000 sold + 6,000 + 3,000);

Loss (18,000 – 5,300) = Rs 12,700;

Balance on 31 Dec 2020 = Rs 79,500]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 4B

XYZ Company depreciates its fixed assets @ 10% under SLM. The company has debit balance of machinery account of Rs 10,20,000 on 1^st January 2020. The machines were purchased on 1^st July 2018. A part of machine purchased on 1^st July 2018 for Rs 80,000 was sold for Rs 45,000 on 30^th June 2020. On the next day, the company purchased another machine for Rs 1,42,000 and installation paid Rs 8,000.

Required: (a) Purchase value of machinery; (b) Machine account for 2018−2020.

[Answer: Purchase value = 12,00,000;

Depn in 2018 = (56,000 + 4,000) = Rs 60,000;

In 2019 = (112,000 + 8,000) = 120,000;

In 2020 = (112,000 old + 4,000 sold + 7,500 new);

Loss on sale (64,000 – 45,000) = Rs 19,000;

Balance in 2020 = 982,500;

* PV (10,20,000 x 100/85) = Rs 12,00,000]

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