Depreciation

Problem 1: M/s. Charan Brothers purchased on 1-1-1998 a plant for Rs. 67000 and spent Rs. 3000on its installation. The estimated life of the plant is 10 yrs after which its scrap value will be Rs. 5000 only. Find out the amount of Depreciation according to straight Line method and prepare plant A/c for the first 3 yrs assuming that the accounting year ends on 31st Dec. Problem 2: A company whose accounting year iis the calendar year, purchased on 1-4-1999 machinery costing Rs. 30000. It purchased further machinery on 1-10-1999 costing Rs. 20000 and on 1-6-2000 costing Rs. 10000.On 1-1-2001 1/3rd of the machinery installed of 1-4-1999 became absolete and was sold for Rs. 3000. Show how machinery A/c will appear in the books of the company it being given that machinery was depreciated by fixed installment method at 10% p.a. what would be the balance on machinery A/c on 1-12002. Problem 3: A manufacturing firm purchased a machinery on 1-1-2003for Rs. 19400 and spent Rs. 6000 an its erection. On 1st July in the same year additional machinery costing Rs. 10000 was acquired. On 1-6-2005 the machinery purchased on 1-1-2003 having become obsolete was auctioned for Rs. 8000 and on the same date fresh machinery was purchased at a cost of RS. 15000 Depreciation was provided annually on 31-12 at the rate of 10% per annum on the original cost of the asset. In 2007 however the firm changed this method to one of writing of 15% on the written down value. Give the machinery A/c as it would stand at the end of each year from 2003-2007. Make your calculations to the nearest Rupee. Problem 4: A manufacturing company purchased on 1-1-2004 second hand machinery for Rs. 30000 and immediately spent Rs. 20000 on overhauling it. On 1-6-2004 additional machinery costing Rs. 25000 was purchased. On 1-6-2006 the machinery purchased on 1-1-2004 became obsolete and was sold for Rs. 10000. On that date new machinery was purchased at a cost of Rs. 60000. Depreciation was provided for annually on 31-12 at the rate of 10% p.a. on the original cost of asset. In 2007 however the company changed this method of providing depreciation and adopted the method of writing of 15 on the diminishing value. Show the machinery account as it would appear in the books of the company for the year 2004-07. Problem 5: A company acquires a lease costing Rs. 15000 for a term of five years. You find from the Annuity Tables that in order to write off the lease on annuity method at 5% interest per annum, the amount to be written off annually as depreciation amounts to Rs. 3464.62. Prepare the Lease Account for the years, and show the annual net charge to Profit & Loss Account during each of these five years. Problem 6: On 1st Jan 2001 a company acquires a lease costing Rs. 30000 for a term of five years. Annuity Table indicates that in order to write off the lease on annuity method at 6% interest per annum as depreciation to Rs. 0.237396 for Rs. 1/-.

Prepare the Lease A/c for all the five years. Problem 7: A seven years lease costing Rs. 45000 was acquired on 1st Jan 2000 and it was decided to provide a depreciation fund for the replacement of lease at the end of the period. Assuming that the Depreciation Fund Investment realized 4% interest annual amount chargeable to depreciation is shown by the annuity table at Rs. 5697.44. Show the Lease A/c, Depreciation Fund A/c and Depreciation Fund Investment A/c for all these years. Problem 8: A five years lease has been acquired by the factory for Rs. 15000 and it has been decided to provide for its annual depreciation as also for its replacement at the expiry of the term on the Depreciation Fund system. A reference to the Depreciation Fund Tables shows that the annual amount to be provided for on the basis of 3% interest works out at Rs. 2826. Show Depreciation Fund A/c and Depreciation Fund Investment A/c for five years. Problem 9: The value of a lease which has five years to run is Rs. 50000. Show Depreciation Fund A/c and Depreciation Fund Investment A/c for a period of five years. Annual charge of depreciation is Rs. 9050 which is invested in 5% Securities. Presume that the investment is made multiple of Rs.10. Calculations to be made to the nearest Rupee. Problem 10: The value of a lease which has five years to run is Rs. 50000. Show Depreciation Fund A/c and Depreciation Fund Investment A/c for a period of five years. Annual charge of depreciation is Rs. 8525 which is invested in 8% Securities. Presume that the investment is made multiple of Rs.100. Calculations to be made to the nearest Rupee. Problem 11: The value of a lease which has five years to run is Rs. 50000. Show Depreciation Fund A/c and Depreciation Fund Investment A/c for a period of five years. Annual charge of depreciation is Rs. 9050 which is invested in 12% Govt. Securities in multiple of Rs. 100 The end of 5th year the investments were sold for Rs. 45000 and the lease was renewed for further 5 years by paying Rs. 56000. Problem 12: A Company purchased a four year lease on 1st April, 1997 for Rs. 20150. It is decided to provide for the replacement of the lease at the end of fourth year by setting a depreciation fund. Investment will fetch interest at 4% per year. Sinking fund table shows that to provide the requisite sum a 4% at the end of fourth year, an investment of Rs.4745.02 in required. Investments are made to the nearest rupee. On March 31, 2001the investments were sold for Rs. 14830. Write lease Account, Depreciation Fund Account and Depreciation Fund Investment Account for the four years in the books of the Company. Problem 13: Niranjan & Sons bought printing machine for Rs. 20000 on 1st January, 1992. The useful life was estimated at three-years with a scrap value of Rs. 2000. Provide depreciation on depreciation fund investment method, investment to carry 5% p.a. interest. The Annuity table shows that Re. 0.317208 at 5% p.a. will in three years accumulate to rupee one. At the end of third year the investments were realized for Rs. 12500. A new machine was purchased for Rs. 22000in the place of old one on the same date.

Prepare necessary Ledger A/c in the books of Niranjan & Sons for 3yrs. Make the calculations to the nearest rupee. Problem 14: Bajirao and Company purchased a machine for Rs. 110000 on 1st April 1998 and decided to charge depreciation at the rate of Rs. 19600 per year. He invested the abive amount in 6% Securities of Rs. 100 each, investment is made on 31st March every yyear and interest is also payable on the same date. He sold the machine as scrap for Rs. 1500 on 31st March 2003 and replaced it by a new machine costing Rs. 150000 on the same date. Securitieswere sold @ Rs. 102 each on 31st March 2003. Write Depreciation Fund Account and Depreciation Fund Investment Account for the five years and machine A/c for the last year. Problem 15: A Company purchased a four years lease on 1st April 1994 for Rs. 110000. It decided to provide for the replacement of the lease at the end of four years by setting up a depreciation fund. It is expected that investments will fetch interest at 12% per annum. Sinking Fund Table shows that Re. 0.209234 invested each year will produce Re. 1 at the end of four years at 10% per annum. Investments were made 12% bonds of Rs. 100 each. Interest was receivable yearly of 31st March. On 31st March 1998 the investments were sold for Rs. 698940. On 1st April 1998 the same lease was renewed for a further period of 4 yrs by payment of Rs. 1200000. Prepare Depreciation Fund Account and Depreciation Fund Investment Account. Books are closed on 31st March every year Problem 16: M/s Aditya Engineering Corporation purchased a machine for Rs. 100000 on 1st Jan 1990. Estimated life of the machine was 10 years. The Corporation decided to create a depreciation fund and to invest the money in investments at 4% interest per annum for raising necessary amount for the replacement of the machine at the end of 10 years. Depreciation fund table shows that to get Re. 1 at 4% interest p. a. at the end of 10 years annually Re. 0.083291 should be invested. At the end of fifth year the machine was sold as scrap for Rs. 48000. Investments were realized for 95% of its book value. New machine was purchased for Rs. 125000. Write Machine A/c, Depreciation Fund Account and Depreciation Fund Investment Account for five years in the ledger of M/s Aditya Engineering Corporation. Problem 17: A lease is purchased on 1st Jan1996 for a term of 5 years by payment of Rs. 40000. The lease is to be renewed at the end of 5yrs for which purpose a sinking fund is established. It is expected that investment will earn 5% interest. Sinking fund table shows that Rs. 7239 invested each year will produce at the end of 5yrs Rs. 40000. investments are made in multiples of Rs. 10. On December 31, 2000 Investments were sold for Rs. 32200. On 1st Jan 2001 same lease was renewed for 5 yrs by making payment of Rs. 40000. Show lease A/c, Depreciation Fund Account and Depreciation Fund Investment Account for 5 yrs. Calculations are to be made to the nearest rupee. Problem 18: On 1st July, 1996, Pearl Ltd purchased a machine for Rs. 110000 and spent Rs. 6000 on its installation. The expected life of the machine is 4 years at th end of which the estimated scr5ap value will be Rs. 16000. Desiring to replace the machine on the expiry of its life, the company establishes a Sinking Fund. Investments are expected to realize 5% interest. On 30th June 2000 the Machine was sold off as scrap for Rs. 18000 and the investements were realized at 5% less than the book value.

On 1st July 2000 a new machine is installed at a cost of Rs. 125000. Sinking Fund table shows that Re. 0.2320 invested each year will produce Re. 1 at the end of 4 years at 5%. Show the necessary Ledger A/cs in the books of Pearl Ltd. for all the years. Calculations to be made to the nearest rupee Problem 19: On 1st January 1996 a lease of premises is purchased for 4 yrs for Rs. 150000 and decided to make provision for the replacement of the lease by means of an insurance policy purchased for an annual premium of Rs. 36000. Show Depreciation Fund A/c and Depreciation Fund Insurance Policy A/c for 4 yrs. Problem 20: On 1ST Jan, 1998, Vidarbha Producers acquires a plant of Rs. 100000 which is expected to efficiently work for 3 years and thereafter to realize Rs. 12000 as salvage. They take an Insurance Policy of Rs. 88000 for 3 years in consideration of the yearly premium of Rs. 26000. Show the Plant A/c, Depreciation Fund Insurance Policy A/c and Depreciation Fund A/c assuming the plant realizes Rs. 12800 as scrap.