Kavita purchased a machine for Rs. 80,000 on 1st April, 2015. She charges depreciation on SLM basis and closes her books on 31st December every year. The machine has a useful life of 8 years after which it can be sold for Rs. 8,000. She purchased another machine on 1st May, 2016 for Rs. 45,000 with 5 years useful life and nil residual value. In 2017, the first machine was sold for Rs. 50,000 on 30th June when a new machine was purchased for Rs. 30,000 with 3 years useful life and Rs. 3,000 as residual value. Prepare the machinery account for the 3 years ending December 31, 2017.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Kavita purchased a machine for Rs. 80,000 on 1st April, 2015. She charges
SLM basis and closes her books on 31st December every year. The machine has a useful life
of 8 years after which it can be sold for Rs. 8,000. She purchased another machine on 1st May,
2016 for Rs. 45,000 with 5 years useful life and nil residual value. In 2017, the first machine
was sold for Rs. 50,000 on 30th June when a new machine was purchased for Rs. 30,000 with
3 years useful life and Rs. 3,000 as residual value. Prepare the machinery account for the 3
years ending December 31, 2017.
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