Ch. 9 Depreciation Account P a g e | 9.

Learning Objectives
Depreciation Accounting

 Meaning of Fixed Assets/Property, Plant and Equipment

 Meaning of Depreciation
 Objectives of Depreciation
 Factors to be consider for assessment of depreciation
 Methods of Recording Depreciation
 Methods of providing depreciation
 Fixed Percentage on Original Cost or Fixed Installment or Straight-line method
 Fixed Percentage on Diminishing balance or Reducing Installment method
 Sum of years (or Digit) method
 Machine Hour Method
 Production Unit or Depletion Method

Practical Questions

Basic Questions
Calculation of Cost of Acquisition

Q 1: Calculate the Cost of PPE if:

Cost of second-hand Furniture Rs.1,90,000
Cost of Repainting the Furniture Rs. 30,000
Wages paid to employees for construction of furniture Rs. 10,000
Fire insurance premium Rs. 3,000
Answer: Rs. 2,30,000

Q 2: Calculate the Cost of PPE if:

Cost as per supplier’s list Rs. 5,20,000
Agreed discount Rs. 52,000
Delivery charge Rs. 12,000
Erection charges Rs. 15,000
Annual maintenance charge Rs. 35,000
Additional components to increase capacity of the machine Rs. 45,000
Annual Insurance premium Rs. 15,000
Answer: Rs. 5,40,000

Q 3: Calculate the Cost of PPE if:

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List price of the machinery purchased Rs. 6,30,000

Trade discount Rs. 30,000
Delivery charges Rs. 15,000
Erection charges Rs. 15,000
Annual Maintenance charges Rs. 25,000
Additional spares to increase earning capacity Rs. 40,000
Annual insurance premium Rs. 10,000
Expected expenses for removal of such item of PPE at the end of its useful life Rs. 15,000
Answer: Rs. 6,85,000

SLM / WDV
Q 4: Jain Bros acquired a machine on 1st Jan, 2009 at a cost of Rs. 24,000 and spent Rs. 1,000
on its installation having scrap value of Rs. 5,000 at the end of its useful life of 4 years. Books
are closed on 31st December every year.
Required:
(i) Calculate rate of depreciation under SLM. [Answer – 20%]
(ii) Show Machinery account for first two years under SLM.
(iii) Calculate rate of depreciation under WDV Method. [Answer – 33.125%]
(iv) Show Machinery account for first two years under WDV Method.

Sum of year’s digit method

Q 5: M/s Vishal purchased a machine for Rs. 10,00,000. Estimated useful life and scrap value
were 5 years and Rs. 1,20,000 respectively. The machine was put to use on 1.1.2010.
Required
Show Machinery Account and Depreciation Account in their books for 2013 by using sum of
year’s digits method.

Machine Hour Rate Method

Q 6: A plant was purchased for Rs. 30,00,000 having an estimated total working of 24,000
hours. The scrap value is expected to be Rs. 2,00,000 and anticipated pattern of distribution
of effective hours is as follows:
Year
1–3 3,000 hours per year
4-6 2,600 hours per year
7 - 10 1,800 hours per year
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Required: Determine Annual Depreciation under Machine Hour Rate Method.

Production Unit Method

Q 7: A machine is purchased for Rs. 2,00,000. Its estimated useful life is 10 years with a
residual value of Rs. 20,000. The machine is expected to produce 1,50,000 units during its life
time. Expected distribution pattern of production is as follows:
Year Production
1-3 20,000 units per year
4-7 15,000 units per year
8-10 10,000 units per year
Required: Determine the value of depreciation for each year using production units method.

Depletion Method
Q 8: M/s Surya took lease of a quarry on 1-1-2013 for Rs. 1,00,00,000. As per technical estimate
the total quantity of mineral deposit is 2,00,000 tonnes. Depreciation was charged on the
basis of depletion method. Extraction pattern is given in the following table:
Year Quantity of Mineral extracted
2013 2,000 tonnes
2014 10,000 tonnes
2015 15,000 tonnes
Required: Show the Quarry Lease Account for each year from 2013 to 2015.

Advance Questions

Q 9: M/s Subha Pharmaceuticals has imported a machine on 1/07/1990 for US$ 8,000, paid
custom duty and freight Rs. 80,000 and incurred erection charges Rs. 60,000. Another local
machinery costing Rs. 1,00,000 was purchased on 1/01/1991. On 01/07/1992 a portion of the
imported machinery (value 1/3rd) got out of order and was sold for Rs. 34,800. Another
machinery was purchased to replace the same for Rs. 50,000. Depreciation is to be
calculated at 20% p. a. on cost. Show the machinery account for 1990, 1991 and 1992.
(Exchange Rate is Rs. 60 per US$)

Q 10: The LG Transport company purchased 10 trucks at Rs. 45,00,000 each on 1st April 2014.
On October 1st, 2016, one of the trucks is involved in an accident and is completely destroyed
and Rs. 27,00,000 is received from the insurance in full settlement. On the same date another
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truck is purchased by the company for the sum of Rs. 50,00,000. The company write off 20%
on the original cost per annum. The company observe the calendar year as its financial year.
Give the motor truck account for two year ending 31 Dec, 2017.

Q 11: AB & Co. purchased on 1st January, 2015 certain machinery for Rs. 5,82,000 and spent
Rs. 18,000 on its erection. On July 1, 2015 another machinery for Rs. 2,00,000 was acquired.
On 1st July, 2016 the machinery purchased on 1st January, 2015 having become obsolete was
auctioned for Rs. 3,86,000 and on the same date fresh machinery was purchased at a cost of
Rs. 4,00,000.
Depreciation was provided for annually on 31st December at the rate of 10 per cent p.a. on
written down value.
Required: Prepare machinery account.

Q 12: The Machinery Account of Rohit showed a balance of Rs. 1,90,000 on 1st January 2017.
Its accounts were made up on 31st December each year and depreciation is written off at 10%
p. a. under the Diminishing balance Method.
On 1st June, 2017, new machinery was acquired at a cost of Rs. 28,000 and installation
charges incurred in erecting the machine works out to Rs. 1,000 on the same date. On 1st
June 2017 a machine which had cost Rs. 6,000 on 1st January, 2012 was sold for Rs. 750 and
another machine which had cost Rs. 600 on 1st January 2013, was scrapped on the same date
and it realized nothing.
Write up plant and Machinery Account. For the year 2017, allowing the same rate of
depreciation as in the past calculating depreciation to the nearest multiple of a rupee.

Q 13: Y ltd. Writes off depreciation @ 10% p.a. on diminishing balance. On April 01, 2020, the
Machinery account showed a balance of Rs. 2,98,000. It was discovered in the year 2020 –
2021 that:
(a) Heavy repairs affected to Plant and Machinery (Completed on September 30, 2018)
were debited to machinery Account. The amount was Rs. 30,000; and
(b) A machine costing Rs. 12,000 was entered in purchase book on January 1, 2019, the
expenses on installation Rs. 800, were debited to General Expense Account.
Necessary corrections were made in 2020 -2021.
On September 30, 2020 a machine which had cost of Rs. 40,000 on April 1, 2018, was disposed
off for Rs. 29,000 and new machine costing Rs. 58,000 was installed on the same day, the
expense on installing the machine being Rs. 3,000.
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Required: Show the Machinery Account for the year ended March 31, 2021.

Provision for Depreciation Account

Q 14: Mr. Singh acquired a machine on 1st Jan, 2019 at a cost of Rs. 50,000 and spent Rs.
10,000 on its installation having scrap value of Rs. 5,000 at the end of its useful life of 4 years.
Books are closed on 31st December every year. Prepare machinery account and provision
for depreciation account for 2019, 2020 and 2021. Mr. Singh follow straight line method for
charging depreciation in his books.

Q 15: On April 1,2015, a firm purchased a machinery for Rs. 2,00,000. On 1st October in the
same accounting year, additional machinery costing Rs. 1,00,000 was purchased. On 1st
October, 2016, the machinery purchased on 1st April, 2015, having become obsolete, was
sold off for Rs. 90,000. On October 1, 2017, new machinery was purchased for Rs. 2,50,000
while the machinery purchased on 1st October, 2015 was sold for Rs. 85,000 on the same
day. The firm provides depreciation on its machinery @ 10% per annum on original cost on
31st March every year. Show Machinery Account, Provision for Depreciation Account and
Depreciation Account for the period of three accounting years ending March 31,2018.
Answer: Balance of Machinery Account as on 31.03.2018 = 2,50,000;
Balance of Provision for Depreciation Account as on 31.03.2016 – 25,000; 31.03.2017 – 15,000;
31.03.2018 – 12,500;

Change in Method of Depreciation

Q 16: M/s Anshul commenced business on 1st January 2011, when they purchased plant and
equipment for Rs. 7,00,000. They adopted a policy of charging depreciation at 15% per annum
on diminishing balance basis and over the years, their purchases of plant have been:
Date Amount Rs.
1-1-2012 1,50,000
1-1-2015 2,00,000
On 1-1-2015 it was decided to change the method and rate of depreciation to straight line
basis. On this date remaining useful life was assessed as 6 years for all the assets purchased
before 1.1.2015 and 10 years for the asset purchased on 1.1.2015 with no scrap value.
Required: Calculate the difference in depreciation to be adjusted in the Plant and Equipment
Account for the year ending 31st December, 2015.

Change in estimated Useful Life

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Q 17: A Machine of Natraj costing Rs. 6,00,000 is depreciated on straight line basis, assuming
10 years working life and Nil residual value, for three years. The estimate of remaining useful
life after third year was reassessed at 5 years.
Required: Calculate depreciation for the fourth year.

Revaluation of Fixed Asset

Q 18: Vishwa had a machine costing Rs. 12,00,000 is depreciated straight-line assuming 10
year working life and zero residual value for three years. At the end of third year, the machine
was revalued upwards by Rs. 60,000 the remaining useful life was reassessed at 9 years.
Required: Calculate depreciation for the fourth year.