entries Debit ` Credit ` January Machinery A/c To Bank A/c (Machinery bought) , , , , January Machinery A/c To Bank A/c (Transportation and installation cost incurred on purchase of machinery) , , December Depreciation A/c To Machinery A/c (Depreciation provided) , , December Profit and Loss A/c To Depreciation A/c (Depreciation transferred to profit and loss account) , , Accountancy Debit ` Credit ` December Depreciation A/c To Machinery A/c (Depreciation provided) , , December Profit and Loss A/c To Depreciation A/c (Depreciation transferred to profit and loss account) , , Illustration Ramu Brothers purchased a machine on 1st July at a cost of ` , and spent ` , on its installation. The firm writes off depreciation at % of original cost every year. The books are closed on 31st December every year. Give journal entries and prepare machinery account and depreciation account for years.
Solution Note: Cost of the asset = Purchase price + Installation cost = , + , = ` , Journal entries Debit ` Credit ` July Machinery A/c To Bank A/c (Machinery bought) , , July Machinery A/c To Bank A/c (Installation expenses on machinery incurred) , , December Depreciation A/c To Machinery A/c ( , × / × / ) (Depreciation provided) December Profit and Loss A/c To Depreciation A/c (Depreciation transferred to profit and loss account) December Depreciation A/c ( , × / ) To Machinery A/c (Depreciation provided) , , December Profit and Loss A/c To Depreciation A/c (Depreciation transferred to profit and loss account) , , Accountancy Ledgers Machinery Account Cr. July To Cash A/c , Dec By Depreciation A/c By Balance c/d , , , Jan To Balance b/d , Dec By Depreciation A/c By Balance c/d , , , , Jan1 To Balance b/d , Depreciation Account Cr. Dec To Machinery A/c Dec By