Example3_depreciation

Example – 3 Nepal Model hospital purchased a second hand X-ray machine for Rs. 450,000 on 1^st Shrawan 2068. The expected working life of the machine was five years. The scrap value of the machine is the machine is expected to be 20% of its original cost. Depreciation is provided on straight-line method. At the end of year 2069, the X-ray machine became unsuitable and disposed off for Rs. 350,000. On the same date, another X-ray Machine was required for Rs. 600,000 having estimated life of ten years.

Required: X-ray machinery account for three years ending 30^th Chaitra.

[Ans: profit on sales 26,000, balance: 540,000]

Step-1: Draw the Format Given below: 

Step 2: Calculation of Profit or Loss when the Assets(Machinery) Sold:

Working Note:

Total Original Cost of (Sold ) Machinery (assets)         xxx
Less: Total Depreciation of Used full Life (…………)     xxx
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(CP) Book value of assets after charging  total depreciation  XXX
(SP) Sales value of Assets(machinery)                                        XXX
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Profit if (SP-CP) : xxx  --- Post it into Dr. side of machinery account

or Loss if (CP- SP) : xxx --- Post it into Cr. side of machinery account

Example – 4  Hama Company purchased furniture for Rs. 60,000 on 1^st July 2013 having estimated salvage value of Rs. 10,000 at the end of 10 years’ life. On 31^st August same year, addition was made for Rs. 45,000 with estimated salvage value for Rs. 15,000 and life of 10 years. On 31^st December 2015, it sold the furniture, which was purchased on 1^st July 2013, for Rs. 40,000. On the same date, it purchased additional furniture Rs. 30,000 having estimated salvage value of zero with life of 5 years. The company has followed fixed installment method of depreciation. Accounts are closed at end of December every year.

Required: Furniture Account for first 3 years.

[Ans: Loss on sales 7,500, balance: 68,000]

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