The following journal entries are recorded under this method: . For recording purchase of asset (only in the year of purchase) Asset A/c (with the cost of asset including installation, expenses etc.) To Bank/Vendor A/c (cash/credit purchase) . Following two journal entries are recorded at the end of each year: (a) For crediting depreciation amount to provision for depreciation account Depreciation A/c (with the amount of depreciation) To Provision for depreciation A/c (b) For charging depreciation to profit and loss account Profit & Loss A/c (with the amount of depreciation) To Depreciation A/c . Balance sheet treatment In the balance sheet, the fixed asset continues to appear at its original cost on the asset side.
The depreciation charged till that date appears in the provision for depreciation account, which is shown either on the “liabilities side” of the balance sheet or by way of deduction from the original cost of the asset concerned on the asset side of the balance sheet. Illustration M/s Singhania and Bros. purchased a plant for Rs. , , on April, , and spent Rs.
, for its installation. The salvage value of the plant after its useful life of years is estimated to be Rs. , . Record journal entries for the year - and draw up Plant Account and Depreciation Account for first three years given that the depreciation is charged using straight line method if : (i) The books of account close on March every year; and (ii) The firm charges depreciation to the asset account.
Solution Books of Singhania and Bros. Journal L.F. Debit Credit Plant A/c , , To Bank A/c , , (Purchased plant for Rs. , , ) Plant A/c , To Bank A/c , (Expenses incurred on installation) Depreciation A/c , To Plant A/c , (Depreciation charged on asset) Profit and Loss A/c , To Depreciation A/c , (Depreciation debited to profit and loss account) Plant Account , , , , , , (Installation expenses) , , , , , , , , , , , , , , , , , , , , , , , , Depreciation Account Amounts Plant , Profit and Loss , Plant