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Test Questions

Problem 1. On 1.1.1998 X Ltd purchased a machinery for $ 58,000 and spent $ 2,000 on its execution. On 1.7.1998 an additional $ 20,000 worth of machinery was purchased. On 1. 7.2000 the machine was purchased and on 1.1.1998 was sold for $ 28,600 and on the same date a new machine was purchased at a cost of $ 40,000. Show the machinery account for the first four calendar years according to written down value method taking the rate of depreciation@ 10%.

 Solution:                    

Machinery Account


Problem 2. X Ltd purchased a machine for $ 60,000 on 1.1.1998. Depreciation, is provided@ 10% p.a. on diminishing Balance method. Prepare machinery account for the year 2000 in each of the following alternative cases.

 (i) If the machine is sold on 1. 7.2000 for $ 28,600.

(ii) If a new machine costing $ 60,000 is purchased on 1. 7.2000 after surrendering the old one and paying cash $ 35,000.

Solution : (i) If the machine is sold on 1.7.2000 for $ 28,600

Machinery Account

(ii) If the new machine costing $ 60,000 is purchased on 1.7.2000 after;  surrendering the old one and paying cash $ 35,000.

 

Problem 3. Mr. Kumar purchased a machine for $ 1,60,000 on 1.1.2000. Its probable working life was estimated as 10 years and its probable scrap value at the end of that time is $ 10,000. You are required to prepare necessary accounts based on straight line method of depreciation!- for three years.

Solution:

 Depreciation Account



Problem 4. On 1.1.1999 machinery was purchased by Mr. X for $ 50,000. On 1. 7.200 additions were made to the extent of $ 10,000. On 1.4.2001 further additions were made to the extent of $ 6,400.

 On 30.6.2002 machinery, the original value of which was $ 8,000 on 1.1.1999 was sold for $ 6,000. Depreciation is charged at 10% p.a. on original cost.
Show the machinery account for the years from 1999 to 2002 in the books of Mr. X. Closes his books on 31st December every year.

 Solution:
Machinery Account


Problem 5. On 1.1.1999 ABC Ltd purchased five machines for $ 20,000 each. Depreciation is charged at the rate of 10% p.a on cost. The accounting year ends on 31st December each year. On 31.3.2000 one machine was sold for $ 16,000 and on 30.9.2001 another machine was sold for $ 15,000. A new machine was purchased on 30.6.2002 for $ 24,000. Prepare machinery account and provision for depreciation account for four years

 Solution :

Machinery Account

Provision for Depreciation Account

 

Problem 6. India Ltd charges depreciation on plant and machinery under Reducing Balance System@ 15% per annum. On 1.4.1998, the Balance in Ledger stood at Rs. 4,60,000.The following particulars are given relating to plant and machinery during the four years ended 31.3.2002.

Date(1)1.9.1998(2) 1.7.1999   (3) 31.8.2000

 

(4) 1.11.2001

Particulars A machine Purchased for $ 20,000 (Installation Expenses $ 1,000) on 1.5.96 was fully destroyed in an accident. Purchased a new machine costing $ 50,000 (Installation Expenses $ 2,500). A sum of $ 30,000 was paid on the same date and the Balance was paid in May 2000. Plant purchased on 1.4.97 for $ 30,000 (Installation Expenses $ 1,500) was disposed off for $ 36,000.
Some old machinery (Book value on 1.4.98 at $ 10,000) were sold for $ 4,000.

Show the plant & machinery Account as would appear in the books of the company for the four years ended 31.3.2002 assuming depreciation is charged proportionately even if the asset is sold or destroyed.

 Solution :          

                                  Plant and Machinery Account



Problem 7. A firm purchases a 5 year lease for $ 30,000. It is decided to write off depreciation on the annuity method, presuming the rate of interest to be 5% per annum. If annuity of $ 1 for 5 years at 5% is 0.230975. Show the lease account for the full period of 5 years

Problem 7. A firm purchases a 5 year lease for $ 30,000. It is decided to write off depreciation on the annuity method, presuming the rate of interest to be 5% per annum. If annuity of $ 1 for 5 years at 5% is 0.230975. Show the lease account for the full period of 5 years

 

Solution :

The amount of depreciation to be charged every year
= 0.230975 * 30,000 = $ 6,929.25

Lease Account

Problem 8. Ramu & Co., purchased a machine at a cost of $ 99,600. It was expected to last for 6 years with a scrap value of $ 3,000. Find out the depreciation for each of the six years under

(i) Production units method and
(ii) Machine Hour Rate method.

Total estimated life in units of production is 87,380 units and total estimated life in machine is 20,900 hours.

 Additional Data are :

Solution:

Production Units method :

Depreciation Rate per unit = Cost – Salvage Value / Estimated Life in Hours
=  99,600 – 3,000 / 87,380
= 96,600
= $1.10

Computation of Annual Depreciation

Machine Hours or Working Hours Method:

Depreciation Rate Per Hour = Cost – Scrap value / Estimated life in hours
=  99,600 – 3,000 / 20,900
= $ 4.62

Computation of Annual Depreciation

 

Problem 9. ABC Ltd purchased a car at a cost of $ 3,00,000 and its estimated life is 60,000 running hours. The car runs for 2000 miles in the first year. 3,000 miles for the second year, 2,500 miles for the third year. Compute per mile and yearly Depreciation.

 Solution:

Depreciation =Cost – Scrap / Estimated Life in Running Miles
= 3,00,000 / 60000
= $ 5

Computation of Annual Depreciation

Problem 10. KLP Ltd leased a manganese ore mine on 30th June 2000 for a sum of $ 6,00,000. It is estimated that the total Quantity of ore in the mine is 60,000 tonne of which 80% may be raised. The annual output is as follows.

Solution :

Depreciation charge per tonne = Total cost/Effective production [80% of 60,000]
i.e.,
600000 [600000 * 80 / 100 = 48,000] = $ 12.5

Mine Account


Problem 11. On 1.1.2002 Rahim Ltd had a stock of bottles valued at $ 12,000. On 1. 7.2002 the company purchased additional bottles for $ 4,000. On 31.12.2002 the entire stock of bottles was revalued at $ 15,000. Calculate the amount of Depreciation.

 Solution :                                                        Bottles Account