Reliance Limited writes off depreciation on Plant and Machinery at 10% per annum on the reducing balance method. On 1st January 2016, the plant and machinery account showed a balance of Rs. 298,000. It was discovered in 2016: a) Repairs effected on the plant on 30th June 2014 were debited to Plant and Machinery Account. The amount was Rs. 30,000. b) A Machinery costing Rs. 12,000 was entered in the purchases Book on 1st October 2014. The expenses of installation Rs. 80 were debited to General Expenses Account. Necessary corrections were made on 1st January 2016. c) During the year on 30th June, a machinery which had cost of Rs. 40,000 on 1st January 2014 was sold for Rs. 30,000 and a new machine costing Rs. 60,000 was installed on the same date, the erection expenses being Rs. 1000.
Reliance Limited writes off depreciation on Plant and Machinery at 10% per annum on the reducing balance method. On 1st January 2016, the plant and machinery account showed a balance of Rs. 298,000. It was discovered in 2016: a) Repairs effected on the plant on 30th June 2014 were debited to Plant and Machinery Account. The amount was Rs. 30,000. b) A Machinery costing Rs. 12,000 was entered in the purchases Book on 1st October 2014. The expenses of installation Rs. 80 were debited to General Expenses Account. Necessary corrections were made on 1st January 2016. c) During the year on 30th June, a machinery which had cost of Rs. 40,000 on 1st January 2014 was sold for Rs. 30,000 and a new machine costing Rs. 60,000 was installed on the same date, the erection expenses being Rs. 1000.
Chapter1: Financial Statements And Business Decisions
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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.
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Reliance Limited writes off depreciation on Plant and Machinery at 10% per annum on the reducing balance method . On 1st January 2016, the plant and machinery account showed a balance of Rs. 298,000.
It was discovered in 2016:
a) Repairs effected on the plant on 30th June 2014 were debited to Plant and Machinery Account. The amount was Rs. 30,000.
b) A Machinery costing Rs. 12,000 was entered in the purchases Book on 1st October 2014. The expenses of installation Rs. 80 were debited to General Expenses Account. Necessary corrections were made on 1st January 2016.
c) During the year on 30th June, a machinery which had cost of Rs. 40,000 on 1st January 2014 was sold for Rs. 30,000 and a new machine costing Rs. 60,000 was installed on the same date, the erection expenses being Rs. 1000.
Show the Plant and Machinery Account for the year 2016. Show your working in detail.
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