, Profit and Loss , Plant , Profit & Loss , Workings Notes ( ) Calculation of original cost (Rs.) Purchase cost , , Add: Installation cost , Original cost , , Salvage value Useful life years ( ) Depreciation amount = p.a. , , , − Illustration M/s Mehra and Sons acquired a machine for Rs. , , on October , , and spent Rs , for its installation. The firm writes-off depreciation at the rate of % on original cost every year.
Record necessary journal entries for the year and draw up Machine Account and Depreciation Account for first three years given that: (i) The book of accounts closes on March every year; and (ii) The firm charges depreciation to asset account. Solution Books of Mehra and Sons Journal Debit Credit L.F. Oct. Machine A/c , , To Bank A/c , , (Purchased machine for Rs.
, , ) Oct. Machine A/c To Bank A/c (Expenses incurred on installation) Depreciation A/c To Machine A/c Depreciation charged on machine) Profit and Loss A/c To Depreciation A/c (Depreciation debited to profit and loss account) Depreciation A/c To Machine A/c (Depreciation charged on machine) Profit and Loss A/c To Depreciation A/c (Depreciation debited to profit and loss account) Depreciation A/c To Machine A/c (Depreciation charged on machine) Profit and Loss A/c To Depreciation A/c (Depreciation debited to profit and loss account) Books of M/s Mehra and Sons Machine Account Oct. , , Oct. (for months) (Installation , , expenses) , , , , , , , , , , , , , , , , , , , , Depreciation Account Machine Profit & Loss Machine Profit & Loss Dec.
Machine Dec. Profit & Loss Working Notes ( ) Calculation of original cost of the machine Purchase cost , , Add Installation cost , Original cost , , ( ) Depreciation expense = % of Rs. , , every year = Rs. , p.a.
( ) During the year , depreciation shall be charged only for months, as acquisition date is October , , i.e. the asset is used only for months during the year - . ( )