Depreciation | Diminishing Balance Method | Part of Asset Sold | DBM
Arjun EP
Part of Asset Sold in Depreciation
Sometimes assets have different components to make complete one product.
Desktop computer needs CPU, monitor, keyboard, mouse, speakers etc.
We purchase these components separately and we can exchange separately too.
But, laptop is a complete product; we cannot sell monitor of laptop separately.
Tractor and trolley are two components; we can purchase or sell either tractor or trolley separately.
PROBLEM: 7A
On 1st April 2018, XYZ Manufacturing Company purchased a plant for Rs 300,000. On 1st January 2019, company purchased another plant for Rs 250,000. On 1st July 2020, company purchased third plant for Rs 150,000.
On 1st October 2020, one third of plant installed on 1st April 2018, became obsolete and was sold for Rs 86,000. The company depreciates plant by 10% p.a. according to DBM. The accounts are closed on 31st December each year.
Required: Plant account for first three years
[Answer: Depn: in 2018 = (7,500 + 15,000) = Rs 22,500;
2019 = (9,250 + 18,500 + 25,000) = Rs 52,750;
2020 = (6,244 sold + 16,650 + 22,500 + 7,500);
Profit on sales = (86,000 – 77,006) = Rs 8,994;
Balance in 2020 = Rs 494,850;
Solution:
300,000 x 1/3 = 100,000
300,000 x 2/3 = 200,000
Given and working note:
Depreciation 10% p.a. under DBM
|
Details |
Date |
Assets |
|||||||||
|
|
Old |
New |
Year |
P1 = 100,000 + 200,000 |
P2 = 250,000 |
P3 = 150,000 |
|||||
|
Purchase value |
1 Apr |
|
2018 |
100,000 |
|
200,000 |
|
− |
|
− |
|
|
Depreciation |
31 Dec |
|
2018 |
7,500 |
(9m) |
15,000 |
(9m) |
− |
|
− |
|
|
Book value/PV |
1 Jan |
1 Jan |
2019 |
92,500 |
|
185,000 |
|
250,000 |
|
− |
|
|
Depreciation |
31 Dec |
|
2019 |
9,250 |
|
18,500 |
|
25,000 |
|
− |
|
|
BV/PV |
1 Jan |
1 Jul |
2020 |
83,250 |
|
166,500 |
|
225,000 |
|
150,000 |
|
|
Depreciation |
31 Dec |
|
2020 |
6,244 |
(9m) |
16,650 |
|
22,500 |
|
7,500 |
(6m) |
|
Balance |
1 Jan |
|
2021 |
77,006* |
|
149,850 |
|
202,500 |
|
142,500 |
|
Profit = Cash salvage value – Book salvage value = 86,000 – 77,006* = 8,994#
Plant Account
For the year ended 31st December
|
Date |
Particulars |
Amount |
Date |
Particulars |
Amount |
|
2018 |
|
|
2018 |
|
|
|
1 April |
To Bank account (P1) |
300,000 |
31 Dec |
By Depreciation account |
22,500 |
|
|
|
|
31 Dec |
By Balance c/d |
277,500 |
|
|
|
300,000 |
|
|
300,000 |
|
2019 |
|
|
2019 |
|
|
|
1 Jan |
To Balance b/d |
277,500 |
31 Dec |
By Depreciation A/c (P1 + P2) |
52,750 |
|
1 Jan |
To Bank account (P2) |
250,000 |
31 Dec |
By Balance c/d |
474,750 |
|
|
|
527,500 |
|
|
527,500 |
|
2020 |
|
|
2020 |
|
|
|
1 Jan |
To Balance b/d |
474,750 |
1 Oct |
By Bank account (sold) |
86,000 |
|
1 July |
To Bank account (P3) |
150,000 |
1 Oct |
By Depn account (on sold) |
6,244 |
|
1 Oct |
To P&L account (profit) |
8,994# |
31 Dec |
By Depn account (P1+P2+P3) |
46,650 |
|
|
|
|
31 Dec |
By Balance c/d |
494,850 |
|
|
|
633,744 |
|
|
633,744 |
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Accounting Equation |
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Basic Journal Entries in Nepali |
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Basic Journal Entries |
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Journal Entry and Ledger |
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Ledger |
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Subsidiary Book |
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Cash Book |
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Trial Balance & Adjusted Trial Balance |
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Bank Reconciliation Statement (BRS) |
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Depreciation |
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Final Accounts: Class 11 |
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Adjustment in Final Accounts |
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Capital and Revenue |
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Single Entry System |
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Non-Trading Concern |
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Government Accounting |
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Goswara Voucher (Journal Voucher) |
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PROBLEM: 7B
EP Online Shopping purchased 3 motor bikes at total cost of Rs 600,000 each on 1st January 2018 delivery purpose; these bikes have equal value. On 30th 2019, the company sold 1 vehicle purchased on 1st January 2018 for Rs 90,000. On next day the company purchased other two bikes at total cost Rs 600,000. Accounts of the company are closed at the end of December each year. Depreciation is charged at 15% per annum using written down value.
Required: Bikes account from 2018 to 2020
[Answer: Depn: in 2018: (60,000 + 30,000);
In 2019: (51,000 + 12,750 sold + 45,000);
In 2020: (43,350 + 83,250);
Loss (157,250 – 90,000) = Rs 67,250;
Balance in 2020 = Rs 717,400
SOLUTION
Given and working note:
Depreciation @ 15% on WDV
|
Particulars |
Date |
Assets |
|||||||
|
Old |
New |
Year |
B1 + B2 = 400,000 |
B3 = 200,000 |
B4 + B5 = 600,000 |
||||
|
Purchase |
1 Jan |
|
2018 |
400,000 |
|
200,000 |
|
|
|
|
Depn |
31 Dec |
|
2018 |
60,000 |
|
30,000 |
|
|
|
|
BV/PV |
1 Jan |
1 July |
2019 |
340,000 |
|
170,000 |
|
600,000 |
|
|
Depn |
31 Dec |
31 Dec |
2019 |
51,000 |
|
12,750 |
(6m) |
45,000 |
(6m) |
|
BV/PV |
1 Jan |
|
2020 |
289,000 |
|
157,250* |
|
555,000 |
|
|
Depn |
31 Dec |
|
2020 |
43,350 |
|
|
|
83,250 |
|
|
Balance |
|
245,650 |
|
|
|
471,750 |
|
||
Loss= BSV – CSV = 157,250*– 90,000 = 67,250
Bikes Account
For the year ended 31st December
|
Date |
Particulars |
Amount |
Date |
Particulars |
Amount |
|
2018 |
|
|
2018 |
|
|
|
1 Jan |
To Bank A/c (B1 + B2 + B3) |
6,00,000 |
31 Dec |
By Depn A/c (B1 + B2 + B3) |
90,000 |
|
|
(Rs 200,000 x 3) |
|
31 Dec |
By Balance c/d |
5,10,000 |
|
|
|
6,00,000 |
|
|
6,00,000 |
|
2019 |
|
|
2019 |
|
|
|
1 Jan |
To Balance b/d |
5,10,000 |
30 Jun |
By Bank account (sold) |
90,000 |
|
1 Jul |
To Bank A/c (B4 + B5) |
6,00,000 |
30 Jun |
By Depreciation (on sold) |
12,750 |
|
|
(Rs 300,000 x 2) |
|
30 Jun |
By P&L account (loss) |
67,250 |
|
|
|
|
31 Dec |
By Depn A/c (B1 + B2 + B4 + B5) |
96,000 |
|
|
|
|
31 Dec |
By Balance c/d |
8,44,000 |
|
|
|
11,10,000 |
|
|
11,10,000 |
|
2020 |
|
|
2020 |
|
|
|
1 Jan |
To Balance b/d |
8,44,000 |
31 Dec |
By Depn A/c (V1 + V2 + V4 + V5) |
1,26,600 |
|
|
|
|
31 Dec |
By Balance c/d |
7,17,400 |
|
|
|
8,44,000 |
|
|
8,44,000 |
#####
PROBLEMS AND ANSWERS OF DEPRECIATION |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 7A
EP Fastfood purchased three equal value bikes at total cost of Rs 600,000 each on 1st April 2018 for home delivery purpose; the firm purchased other two equal value bikes on 1st March 2019 at cost Rs 600,000. On 1st January 2020, the company sold one bike purchased on 1st January 2018 for Rs 150,000. The firm closes its accounts at calendar year. Depreciation is charged at 15% per annum using reducing balance method.
Required: Bikes account from 2018 to 2020
[Answer: Depn: in 2018: (45,000 + 22,500);
In 2019: (53,250 + 26,625 + 75,000);
In 2020: (45,263 + Nil on sold + 78,750);
Loss (150,875 – 150,000) = Rs 875;
Balance in 2020 = Rs 702,737
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 7B
EP Online Study purchased on 1 July 2018 a desktop set of CPU of Rs 60,000 and monitor, keyboard and mouse for Rs 30,000. On 1st January 2019, the firm purchased another desktop set for Rs 150,000.
On 30th September 2020; the CPU of the first desktop installed on 1st July 2018, became slow process for video editing and was sold for Rs 10,000. The next day, the firm purchased new CPU for Rs 150,000. The firm depreciates equipment by 20% p.a. as per diminishing balance method. The accounts are closed as per calendar year.
Required: Computer account for first three years
[Answer: Depn: 2018 (6,000 + 3,000) = Rs 9,000;
2019 = 10,800 + 5,400 + 24,000) = Rs 40,200;
2020 = 6,480 sold + 4,320 + 19,200 + 7,500;
Loss (36,720 – 10,000) = Rs 26,720;
Balance in 2020 = Rs 236,580;
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