Fixed installment method is also known as straight line method, original value method and original cost method.
Under this method, depreciation is charged on fixed asset equally each year.
Depreciation is calculated on either percentage basis or life of asset basis.
There are two methods for accounting treatment.
One is without opening provision for Depreciation account and other with opening provision for depreciation account.
Annual depreciation
Depn = (Purchase value + Transportation + Installation charge + Erection charge – Scrap) x (% ÷ 100)
Annual depreciation
Depn = (Purchase value + Transportation + Installation charge + Erection charge – Scrap) ÷ Life
Net value = Purchase value + Transportation + Installation charge + Erection charge – Scrap
Company purchases additional fixed assets when its business grew and expanded.
Fixed asset becomes old or outdated.
In this condition, company sells old asset and purchases new asset.
Sometimes, company can exchange new asset from old asset.
While selling or exchanging, there may be capital profit or capital loss.
Loss is debited in journal entry but profit is credited in journal entry.
(Loss is recorded in credit side but profit is recorded in debit side of asset account)
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 2A
On 1st April 2018, ABC Company purchased a machine for $/₹/Rs 100,000. On 1st July 2019, another machine was purchased for $200,000. On 30th September 2020, the company sold the machine which was purchased on 1st April 2018 for $60,000. On next day, another new machine was purchased for $150,000. The accounts of the com are closed as per calendar and depreciation is charged at 15% p.a. on fixed installment system.
Required: Machinery Account from 2018 to 2020
[Answer: Depreciation: in 2018 = $11,250; in 2019 = (15,000 + 15,000);
In 2020 (11,250 + 30,000 + 5,625); Balance on 31 Dec 2020 = $299,375;
Loss = $62,500 – $60,000 = $2,500]
SOLUTION
Given and working note:
Depreciation 15% FIM
Particulars |
Date |
Assets |
|||||||
Old |
New |
Year |
M1 100,000 |
M2 = 200,000 |
M3 = 150,000 |
||||
Purchase |
1 April |
|
2018 |
100,000 |
|
|
|
|
|
Depreciation |
31 Dec |
|
2018 |
11,250 |
(9m) |
|
|
|
|
Book value/Purchase |
1 Jan |
1 Jul |
2019 |
88,750 |
|
200,000 |
|
|
|
Depreciation |
31 Dec |
31 Dec |
2019 |
15,000 |
|
15,000 |
(6m) |
|
|
Book value/Purchase |
1 Jan |
1 Oct |
2020 |
73,750 |
|
185,000 |
|
150,000 |
|
Depreciation |
30 Sep |
31 Dec |
2020 |
11,250 |
(9m) |
30,000 |
|
5,625 |
(3m) |
Balance |
|
62,500* |
|
155,000 |
|
144,375 |
|
Loss = BSV – CSV = 62,500* – 60,000 = 2,500
Machinery Account
For the year ended 31st December
Date |
Particulars |
Amount |
Date |
Particulars |
Amount |
2018 |
|
|
2018 |
|
|
1 Apr |
To Bank account (M1) |
100,000 |
31 Dec |
By Depreciation account |
11,250 |
|
|
|
31 Dec |
By Balance c/d |
88,750 |
|
|
100,000 |
|
|
100,000 |
2019 |
|
|
2019 |
|
|
1 Jan |
To Balance b/d |
88,750 |
31 Dec |
By Depreciation A/c (M1 + M2) |
30,000 |
1 Jul |
To Bank account (M2) |
200,000 |
31 Dec |
By Balance c/d |
258,750 |
|
|
288,750 |
|
|
288,750 |
2020 |
|
|
2020 |
|
|
1 Jan |
To Balance b/d |
258,750 |
30 Sep |
By Bank account (sold) |
60,000 |
1 Oct |
To Bank account (M3) |
150,000 |
30 Sep |
By P&L (loss) |
2,500 |
|
|
|
30 Sep |
By Depn account (on sold) |
11,250 |
|
|
|
31 Dec |
By Depn A/c (M2+M3) |
35,625 |
|
|
|
31 Dec |
By Balance c/d |
299,375 |
|
|
408,750 |
|
|
408,750 |
###########
Click on link for YouTube videos: |
|
Accounting Equation |
|
Basic Journal Entries in Nepali |
|
Basic Journal Entries |
|
Journal Entry and Ledger |
|
Ledger |
|
Subsidiary Book |
|
Cash Book |
|
Trial Balance & Adjusted Trial Balance |
|
Bank Reconciliation Statement (BRS) |
|
Depreciation |
|
Final Accounts: Class 11 |
|
Adjustment in Final Accounts |
|
Capital and Revenue |
|
Single Entry System |
|
Non-Trading Concern |
|
Government Accounting |
|
Goswara Voucher (Journal Voucher) |
###########
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 2B
On 1st January 2018, ABC Company purchased a machine for $/₹/Rs 100,000. On 1st July 2019, another machine was purchased for $200,000. On 1st July 2020, the company sold the machine which was purchased on 1st July 2019 for $175,000. On same date, another new machine was purchased for $150,000. The accounts of the company are closed at the end of December each year and depreciation is charged at 15% p.a. on fixed installment system.
Required: Machinery Account from 2018 to 2020
Given and working note:
Depreciation 15% FIM
Particulars |
Date |
Assets |
|||||||
Old |
New |
Year |
M1 100,000 |
M2 = 200,000 |
M3 = 150,000 |
||||
Purchase |
1 Jan |
|
2018 |
100,000 |
|
|
|
|
|
Depreciation |
31 Dec |
|
2018 |
15,000 |
|
|
|
|
|
Book value/Purchase |
1 Jan |
1 Jul |
2019 |
85,000 |
|
200,000 |
|
|
|
Depreciation |
31 Dec |
31 Dec |
2019 |
15,000 |
|
15,000 |
(6m) |
|
|
Book value/Purchase |
1 Jan |
1 July |
2020 |
70,000 |
|
185,000 |
|
150,000 |
|
Depreciation |
31 Dec |
31 Dec |
2020 |
15,000 |
15,000 |
(6m) |
11,250 |
(6m) |
|
Balance |
|
55,000 |
|
170,000* |
|
138,750 |
|
Profit = CSV – BSV = 175,000 – 170,000* = 5,000
Machinery Account
For the year ended 31st December
Date |
Particulars |
Amount |
Date |
Particulars |
Amount |
2018 |
|
|
2018 |
|
|
1 Jan |
To Bank account (M1) |
100,000 |
31 Dec |
By Depreciation account |
15,000 |
|
|
|
31 Dec |
By Balance c/d |
85,000 |
|
|
100,000 |
|
|
100,000 |
2019 |
|
|
2019 |
|
|
1 Jan |
To Balance b/d |
85,000 |
31 Dec |
By Depreciation A/c (M1 + M2) |
30,000 |
1 Jul |
To Bank account (M2) |
200,000 |
31 Dec |
By Balance c/d |
255,000 |
|
|
285,000 |
|
|
285,000 |
2020 |
|
|
2020 |
|
|
1 Jan |
To Balance b/d |
255,000 |
July 1 |
By Bank account (sold) |
175,000 |
1 July |
To P&L (profit) |
5,000 |
July 1 |
By Depn account (on sold) |
15,000 |
1 July |
To Bank account (M3) |
150,000 |
Dec 31 |
By Depn A/c (M1+M3) |
26,250 |
|
|
|
Dec 31 |
By Balance c/d |
193,750 |
|
|
410,000 |
|
|
410,000 |
***********
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 2C
Expert Educational Consultancy has following extracted transactions related to furniture:
1−1−2018: |
Furniture has debit balance of $50,000. |
1−7−2018: |
Furniture purchased $40,000. |
1−1−2020:
|
Furniture purchased in July 2018 was exchanged with new furniture of $60,000. Old furniture valued for $20,000. |
Other information:
· Accounts are closed on 31st December each year
· Rate of depreciation: 20% p.a. under original value method.
required: (a) Furniture Account from 2018 to 2020; (b) Journal entry for exchange of asset
[Answer: Depreciation: in 2018: (F1 $10,000 + F2 $4,000) = $14,000;
In 2019 (F1 $10,000 + F2 $8,000) = $18,000;
In 2020 (F1 $10,000 + F2 NIL + M3 $12,000) = $22,000;
Loss on exchange (28,000 – 20,000) = $8,000;
Balance on 31 Dec 2020 = $68,000]
SOLUTION
Depreciation @ 10% on OCM
Particulars |
Date |
Assets |
|||||||
Old |
New |
Year |
F1 = 50,000 |
F2 = 40,000 |
F3 = 60,000 |
||||
Book value/Purchase |
1 Jan |
1 July |
2018 |
50,000 |
|
40,000 |
|
|
|
Depreciation |
31 Dec |
31 Dec |
2018 |
10,000 |
|
4,000 |
(6m) |
|
|
Book value |
1 Jan |
1 Jan |
2019 |
40,000 |
|
36,000 |
|
|
|
Depreciation |
31 Dec |
31 Dec |
2019 |
10,000 |
|
8,000 |
|
|
|
Book value/Purchase |
1 Jan |
1 Jan |
2020 |
30,000 |
|
28,000 |
|
60,000 |
|
Depreciation |
31 Dec |
31 Dec |
2020 |
10,000 |
|
|
|
12,000 |
|
Balance |
|
20,000 |
|
|
|
48,000 |
|
Loss = BSV – CSV or exchange = 28,000 – 20,000 = 8,000
Journal Entry for Asset Exchange
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Sales or exchange of fixed assets |
|
|
|
|
|
Furniture account (new) |
Dr |
|
60,000 |
|
|
Accumulated depreciation account |
Dr |
|
12,000 |
|
|
P&L account (loss on sales or exchange) |
Dr |
|
8,000 |
|
|
To Furniture account (exchange value) |
|
|
|
20,000 |
|
To Bank account |
|
|
|
60,000 |
|
(Being- old furniture exchanged and loss adjusted) |
|
|
|
|
|
|
|
|
|
|
Furniture Account
For the year ended 31st December
Date |
Particulars |
Amount |
Date |
Particulars |
Amount |
2018 |
|
|
2018 |
|
|
1 Jan |
To Balance b/d (F1) |
50,000 |
31 Dec |
By Depn account |
14,000 |
1 July |
To Bank account (F2) |
40,000 |
31 Dec |
By Balance c/d |
76,000 |
|
|
90,000 |
|
|
90,000 |
2019 |
|
|
2019 |
|
|
1 Jan |
To Balance b/d |
76,000 |
31 Dec |
By Depn A/c (F1+F2) |
18,000 |
|
|
|
31 Dec |
By Balance c/d |
58,000 |
|
|
76.000 |
|
|
76.000 |
2020 |
|
|
2020 |
|
|
1 Jan |
To Balance b/d |
58,000 |
1 Jan |
Bank (exchange value) |
20,000 |
1 Jan |
To Bank account (F3) |
60,000 |
1 Jan |
By Depn account (on sold) |
Nil |
|
|
|
1 Jan |
By P&L account (loss) |
8,000 |
|
|
|
31 Dec |
By Depn A/c (M1 + M3) |
22,000 |
|
|
|
31 Dec |
By Balance c/d |
68,000 |
|
|
118,000 |
|
|
118.000 |
#####
PROBLEMS AND ANSWERS OF DEPRECIATION |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country
PROBLEM: 2A
On 1st January 2018, ABC Company purchased a machine for $/₹/Rs 100,000. On 1st July 2019, another machine was purchased for $200,000. On 1st July 2020, the company sold the machine which was purchased on 1st July 2019 for $160,000. On same date, another new machine was purchased for $150,000. The accounts of the company are closed at the end of December each year and depreciation is charged at 15% p.a. on fixed installment system.
Required: Machinery Account from 2018 to 2020
[Answer: Depreciation: in 2018: (M1 $15,000;
In 2019 (M1 $15,000 + M2 $15,000) = $30,000;
In 2020 M2 $15,000 sold; (M1 $15,000 + M3 $11,250 = $26,250;
Loss on exchange (170,000 – 160,000) = $10,000;
Balance on 31 Dec 2020 = $193,750]
PROBLEM: 2B
Transactions related to machinery are as given below:
1 Jan 2018: |
Opening balance of machine $80,000. |
1 July 2018: |
Machinery purchased of $30,000. |
31 Dec 2019: |
The second machine become obsolete and sold for $20,000. |
1 Jan 2020: |
New machinery was purchased for $50,000. |
Required: Machinery account from the year 2018 to 2020 by providing depreciation at 10% p.a. on original cost method
[Answer: Depreciation: in 2018 = M1 $8,000 + M2 $1,500 = $9,500;
In 2019 (M1 $8,000 + M2 $3,000 sold) ;
In 2020 (M1 $8,000 + M3 $5,000) = $13,000;
Loss on sales (25,500 – 20,000) = $5,500;
Balance on 31 Dec 2020 = $101,000
PROBLEM: 2C
A company purchased a machine on 1st March 2017 costing $180,000 and spent Rs 10,000 for its repair and $10,000 for its installation. On 1st July 2018 another machine costing $150,000 was purchased. On 30th September 2019 the machine purchased on 1st March 2017 was disposed of for $72,000. On 1st October 2019, another machine costing $200,000 was acquired. Depreciation has been charged @20% per annum under straight line method. Accounts are closed on 31st December each year.
Required: Machinery account for the year 2017 to 2020.
[Answer: Depreciation: in 2017: M1 $30,000;
In 2018: M1 $40,000 + M2 $15,000 = $55,000;
In 2019 (M1 $30,000 sold + M2 $30,000 + M3 $10,000;
In 2020 M2 $30,000 + M2 $40,000 = $70,000;
Loss on sale (100,000 – 72,000) = $28,000;
Balance on 31 Dec 2020 = $225,000]
***** #EPOnlineStudy *****
Thank you for investing your time.
Please comment on article.
You can help us by sharing this article at your social media platform.
Jay Google, Jay YouTube, Jay Social Media
जय गूगल, जय युट्युब, जय सोशल मिडिया
Comment box closed