Adjustments in Final Accounts: Depreciation on Fixed Assets

Arjun EP

Published on: September 23, 2020

Adjustments in Final Accounts

Adjustment entry means not adjusted while preparing trial balance.

It is also known additional information.

Almost all the adjustment entry effects dual aspect.

One is debit and other is credit.

There are a number of adjustments to be made while finalizing the financial statements.

But our discussion will be limited to the following adjustments (limited by the curriculum):

1	Dividend	13	Bad debts, provision and discount
2	Transfer to reserve and fund	14	Recovery of bad debts
3	Adjustment of tax	15	Goods loss by fire and insurance claim
4	Closing stock	16	Goods distribute as free sample
5	Outstanding expenses	17	Manager’s commission
6	Prepaid expenses	18	Bonus or pension to employees
7	Accrued revenue or income	19	Create reserve or fund
8	Unearned or prepaid revenue	20	Goods sold on sale or return basis
9	Depreciation on assets	21	Hidden adjustment:
10	Appreciation on assets		(a) Interest on loan or debenture
11	Written off or amortized		(b) Interest on investment
12	Purchase or sale of fixed assets		(c) Monthly rent and salary

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Depreciation is taken from Latin word ‘Depretium’.

De means to decrease and Pretium means price.

Therefore, depreciation means decrease in price of asset.

Depreciation is charged on tangible assets except land. Land is not depreciated.

Fixed assets are depreciated but Intangible assets are written of or amortized.

Depreciation effects profit and loss or revenue and expenditures of an organization.

It is non-cash expenses. It is debited in profit and loss account.

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =

ADJUSTMENT: 9A

Extracted Trail Balance

Additional information:

Depreciation is charged on plant and machinery @ 10% p.a.

Depreciation is charged on furniture by Rs 7,500

Equipment valued Rs 75,000

Required: (1) Journal entry; (2) Show in profit and loss account and balance sheet

Solution

Journal Entry

Date	Particulars		LF	Amount	Amount
	Depreciation on plant and machinery account	Dr		60,000
	To Plant and machinery account				60,000
	(Being- depreciation charged on machinery
	600,000@10%)
	Depreciation on furniture account	Dr		7,500
	To Furniture account				7,500
	(Being- depreciation charged on furniture
	50,000@15%)
	Depreciation on equipment account	Dr		5,000
	To Equipment account				5,000
	(Being- equipment revalued

P&L Account

Balance Sheet