1.

0 MEANING OF DEPRECIATION
1.1 OnthebasisofFundamentalAccountingAssumptionofGoingConcern,assetsareclassifiedasFixed
AssetsandCurrentAssets.Fixedassetsareusedinthebusinesstoderivebenefitsformorethanone
accountingperiod.Periodicprofitismeasuredbychargingcostagainstperiodicrevenue.Sincefixed
assetsareusedtogenerateperiodicrevenue,anappropriateproportionofthecostoffixedassets,whichis
believedtobeusedorexpiredforgenerationofperiodicrevenue,needstobechargedascost.Suchan
appropriateproportionofthecostoffixedassetsistermedasDepreciation.
1.2 Generally,thetermdepreciationisusedtodenotedecreaseinvaluebutinaccounting,thistermisused
todenotedecreaseinthebookvalueofafixedasset.Depreciationisthepermanent andcontinuous
decreaseinthebookvalueofafixedassetduetouse,effluxionoftime,obsolescence,expirationoflegal
rightsoranyothercause.
1.3 AccordingtotheInstituteofCharteredAccountantsinEnglandandWales,Depreciationrepresents
thatpartofthecostofafixedassettoitsownerwhichisnotrecoverablewhentheassetisfinallyout
ofusebyhim.Provisionagainstthislossofcapitalisanintegralcostofconductingthebusiness
during the effective commercial life of the asset and is not dependent on the amountof profit
earned.
1.4 Depreciationisnottheresultoffluctuationsinthevalueoffixedassetssince,thefluctuationisconcerned
withthemarketpriceofthefixedassetwhereasthedepreciationisconcernedwiththehistoricalcost.
1.5 Ananalysisofthedefinitiongivenabovehighlightsthecharacteristicsofdepreciationasfollows:
(a) ItisrelatedtoDepreciablefixedassetsonly.
(b) Itisafallinthebookvalueofdepreciablefixedasset.
(c) Thefallinthebookvalueofanassetisduetotheuseoftheassetinbusinessoperations,effluxionof
time,obsolescence,expirationoflegalrightsoranyothercause.
(d) Itisapermanentdecreaseinthebookvalueofanasset.
(e) Itisacontinuousdecreaseinthebookvalueofanasset.
1.6 Comprehensively,thetermDepreciationcoversDepletion,AmortizationandObsolescence.
1.7 ThetermDepletionreferstothephysicaldeteriorationbytheexhaustionofnaturalresources(ore
depositsinmines,oilwells,quarries,timberstandsetc.).
1.8 The term Amortisation refers to the economic deterioration by the expiration of intangible assets
(patents,copyrights,goodwilletc.)
1.9 ThetermObsolescencereferstotheeconomicdeteriorationby(a)inventionofimprovedtechniqueor
equipment(b)marketdeclineduetochangeintasteandfashionetc.(c)inadequacyofexistingplantto
meettheincreasedbusiness.

2.0 MEANING OF DEPRECIATION ACCOUNTING

AccordingtotheAmericanInstituteofCertifiedPublicAccountants(AICPA),DepreciationAccounting
isasystemofaccountingwhichaimstodistributecostorthebasicvalueoftangiblecapitalassets
lesssalvage(ifany),overtheestimatedusefullifeoftheunit(whichmaybegroupofassets)ina
systematicandrationalmanner.Itisaprocessofallocationandnotofvaluation.

3.0 CAUSES OF DEPRECIATION

Themaincausesofdepreciationincludethefollowing:
3.1 PhysicalwearandtearWhenthefixedassetsareputtouse,thevalueofsuchassetsmaydecrease.Such
decreaseinthevalueofassetsissaidtobeduetophysicalwearandtear.
3.2 WiththepassageoftimeWhentheassetsareexposedtotheforcesofnaturelikeweather,winds,rains,
etc.thevalueofsuchassetsmaydecreaseeveniftheyarenotputtoanyuse.
3.3 ChangesineconomicenvironmentThevalueofanassetmaydecreaseduetodecreaseinthedemandof
theasset.Thedemandoftheassetmaydecreaseduetotechnologicalchanges,changesinthehabitsof
consumersetc.
3.4 ExpirationoflegalrightsWhentheuseofanasset(e.g.,patents,leases)isgovernedbythetimebound
arrangement,thevalueofsuchassetsmaydecreasewiththepassageoftime.
4.0 NEED FOR CHARGING DEPRECIATION
Theneedforchargingdepreciationinaccountingrecordsarisesduetoanyoneormoreofthefollowing
objectivestobeachieved:
4.1 ToascertaintruefinancialperformanceForpropermatchingofcostswithrevenues,itisnecessaryto
chargethedepreciation(cost)againstincome(revenue)ineachaccountingperiod.Unlessthedepreciation
is charged against income, the result of operations would stand overstated. As a result the Income
Statementwouldfailtopresentatrueandfairviewoftheresultofoperationsofanaccountingentity.
4.2 ToascertaintrueandfairviewofthefinancialpositionForpresentingatrueandfairviewofthe
financial position, it is necessary to charge the depreciation. If the depreciation is not charged, the
unexpiredcostoftheassetconcernedwouldbeoverstated.Asaresult,thePositionStatement(i.e.the
BalanceSheet)wouldnotpresentatrueandfairviewofthefinancialpositionofanaccountingentity.
4.3 ToascertainthetruecostofproductionForascertainingthecostofproduction,itisnecessaryto
chargedepreciationasanitemofcostofproduction.Ifthedepreciationonfixedassetsisnotcharged,the
costrecords,wouldnotpresentatrueandfairviewofthecostofproduction.
4.4 TocomplywithlegalrequirementsIncaseofcompanies,itiscompulsorytochargedepreciationon
fixedassetsbeforeitdeclaresdividend[Sec.205(1)ofTheCompaniesAct,1956].
4.5 To accumulate funds for replacement of assetsA portion of profits is set aside in the form of
depreciationandaccumulatedeachyeartoprovideadefiniteamountat acertainfuturedateforthe
specificpurposeofreplacementoftheassetattheendofitsusefullife.

5.0 FACTORS AFFECTING THE AMOUNT OF DEPRECIATION

Theamountofdepreciationisusuallybasedonthefollowingthreefactors:
5.1 Historical costof a depreciable asset implies the cost incurred on its acquisition, installation,
commissioningandforadditionstoorimprovementsthereofwhichareofcapitalnature.
5.2 Expectedusefullifeofadepreciableassetimplieseithertheperiodoverwhichadepreciableassetis
expectedtobeusedbytheenterpriseorthenumberofproductionorsimilarunitsexpectedtobeobtained
fromtheuseoftheassetbytheenterprise.
5.3 Estimatedresidualvalueofadepreciableassetimpliesthevalueexpectedtoberealisedonitssaleor
exchangeontheexpiryofitsusefullife.

6.0 DEPRECIATION ON ADDITIONS TO FIXED ASSETS

Strictlyforexaminationpurposes,thefollowingapproachissuggested:

TypeofRateofDepreciation Period for which Depreciation is

given
(a) WhentheRateofDepreciation
withthewords,perannum
isgiven(e.g.20%p.a.)
(i) Ifthedateofacquisition
isgiven
(ii) Ifthedateofacquisitionis
notgiven
(b) WhentheFlat(orBlanket)
RateofDepreciationwithout
thewords,perannumis
tobecharged
(i) Charge depreciation for the period
beginningwiththedateofacquisition
andendingwiththedateofclosingaccountingperiod.
(ii) AlternativeIChargedepreciation
forthefullaccountingperiodassumingthattheassetwasacquiredin
thebeginningofaccountingperiod.
AlternativeIIChargedepreciationforthehalfaccountingperiod
assumingthattheassetwasacquiredinthemiddleofaccounting
period.
AlternativeIIIChargenodepreciationassumingthattheassetwas
acquiredattheendofaccountingperiod.
Note: Usually Alternative II is adopted after giving note to that
effect.
Chargedepreciationforthefull
accountingperiodirrespectiveof
thedateofacquisition.
 given(e.g.20%)

6.0 TWO METHODS OF RECORDING DEPRECIATION

TherearetwomethodsofrecordingDepreciationasfollows:
1. ByChargingtoAssetAccount.
2. ByCreatingProvisionforDepreciation/AccumulatedDepreciationAccount.
Letusdiscussthesemethodsonebyone.
7.0 RECORDING OF DEPRECIATION BY CHARGING TO ASSET
ACCOUNT METHOD
7.1 MeaningUnderthismethodofrecordingdepreciation,depreciationisdirectlycreditedtotheRespective
AssetAccountandasaresult,theRespectiveAssetAccountappearsatitsbookvalue(i.e.OriginalCost
lessdepreciationtilldate).
7.2 JournalEntriesThevariousjournal entrieswhicharepassedunderthismethodaresummarisedas
under:
1. TorecordPurchaseofAsset AssetA/c Dr.
ToCash/BankA/c
(Beingtheassetpurchased)
2. ToprovideDepreciation DepreciationA/c Dr.
ToAssetA/c
(Beingthedepreciationprovided)
3. TocloseDepreciation Profit&LossA/c Dr.
Account ToDepreciationA/c
(BeingthetransferofDepreciationA/cto
P&LA/c)
4. TorecordSaleofAsset Cash/BankA/c Dr.
ToAssetA/c
(Beingtheassetsold)
5. TorecordProfit/LossonSale
(a) IncaseofProfit AssetA/c Dr.
ToProfit&LossA/c
(Beingthetransferofprofitonsale)
(b) IncaseofLoss Profit&LossA/c Dr.
ToAssetA/c
(Beingthetransferoflossonsale)

Tutorial Notes
1. BookValueasondateofSale=OriginalCost TotalDepreciationtill dateofsale
2. Profit=SaleProceedsBookValueasondateofsale
3. Loss=BookValueasondateofsaleSaleProceeds
4. Incaseofexchangeofanasset,saleproceedsimplytheTradeinallowance(i.e.theamountat
whichthevendoragreestoacquiretheoldasset)
5. Incaseofdestruction/damageofaninsuredassetbyfireoraccident,saleproceedsimplyclaim
admittedbyInsurancecompanytogetherwithsalvagevalue(ifany).

8.0 METHODS OF ALLOCATING DEPRECIATION

There are several methodsof allocating depreciation over the useful livesof the assets. Those most
commonlyemployedinindustrialandcommercialenterprisesaretheStraightLineMethod(SLM)and
theWrittenDownValueMethod(WDV).

9.0 STRAIGHT LINE METHOD OF DEPRECIATION (SLM)

9.1 MeaningUnderthestraightlinemethod,afixedandequalamountintheformofdepreciation,according
toafixedpercentageontheoriginalcost,iswrittenoffduringeachaccountingperiodovertheexpected
usefullifeoftheasset.
9.2 How to Calculate the Rate of Depreciation under SLMThe amount and rate of depreciation is
calculatedasunder:
Step1: AmountofDepreciation=
Step2: RateofDepreciation=100
9.3 MeritsThemainmeritsofStraightLineMethodareasfollows:
1. Itiseasytounderstand.
2. Itiseasytocalculatetheamountandrateofdepreciation.
3. Underthismethod,thebookvalueoftheassetbecomeszeroorequaltoitsscrapvalueattheexpiry
ofitsusefullife.
9.4 DemeritsThemaindemeritsofStraightLineMethodareasfollows:
1. Thetotalcharge(i.e.depreciationplusrepairsandrenewals)inlateryearsismoreascomparedtothat
inearlieryearssince,theamountofrepairsandrenewalsgoesonincreasingastheassetgrowsolder
whereastheamountofdepreciationremainsconstantyearafteryear.
2. Itdoesnottakeintoconsiderationtheinterestonthecapitalinvestedintheasset.
3. Itdoesnotprovideforthereplacementoftheassetontheexpiryofitsusefullife.
9.5 SuitabilityThismethodissuitableforthoseassetsinrelationtowhich(a)repairchargesareless,and(b)
thepossibilityofobsolescenceisless.Thismethodissuitableforfurniture,patent,copyright,trademark,
leaseetc.
ILLUSTRATION 1 [Calculation of Rate of Depreciation under
Straight Line Method]
CalculatetheRateofDepreciationunderStraightLineMethod(SLM)ineachofthefollowingalternativecases:
Case PurchasePrice Expensestobe EstimatedResidual Expected
ofMachine(Rs) capitalized(Rs) Value(Rs) UsefulLife
(a) 80,000
40,000 4Years
(b) 17,000
2,00010Years
(c) 45,000
10,000 10Years
(d) 2,00,000
25,000 5years

Step1:CalculationofTotalCostofAsset
TotalCostofAsset=PurchasePrice+Expensestobecapitalized
Case(a) =Rs80,000+Rs20,000=Rs1,00,000
Case(b) =Rs17,000+Rs3,000=Rs20,000
Case(c) =Rs45,000+Rs5,000=Rs50,000
Case(d) =Rs2,00,000+Rs50,000=Rs2,50,000
Step2:CalculationofAmountofDepreciationperyear
AmountofDepreciation=
Case(a) ==Rs15,000
Case(b) ==Rs1,800
Case(c) ==Rs4,000
Case(d) ==Rs45,000
Step3:CalculationoftheRateofDepreciationunderSLM
RateofDepreciation(underSLM)=100
Case(a) =(15000/100000) 100=15%
Case(b) =100=9%
Case(c) =100=8%
Case(d) =100=18%
ILLUSTRATION 2 [Calculation of Amount of Depreciation for the first year of
purchase if Rate of Depreciation is not given]
AmachineispurchasedforRs80,000.ExpensesincurredonitscartageandinstallationRs20,000.Theresidual
valueat theendofitsexpecteduseful lifeof4yearsisestimatedat Rs40,000.Calculatetheamount of
depreciationforthefirstyearendingon31stMarch,20X2ifthismachineispurchasedon:
(a) 1stApril,20X1
(b) 1stJuly,20X1
(c) 1stOctober,20X1
(d) 1stJanuary,20X2

Step1:TotalCostofAsset =PurchasePrice+Expensestobecapitalized
=Rs80,000+Rs20,000=Rs1,00,000
Step2:AmountofDepreciationperyear
=
==Rs15,000peryear
Step3:AmountofDepreciationforthefirstyearofPurchase
Case(a) IfDateofPurchaseis1.4.20X1
AmountofDepreciationfor12months=Rs15,000
Case(b) Ifdateofpurchaseis1.7.20X1
AmountofDepreciationfor9months=Rs15,000=Rs11,250
Case(c) Ifdateofpurchaseis1.10.20X1
AmountofDepreciationfor6months=Rs15,000=Rs7,500
Case(d) Ifdateofpurchaseis1.1.20X2
AmountofDepreciationfor3months=Rs15,000=Rs3,750

ILLUSTRATION 3 [Calculation of Amount of Depreciation for the first year of

purchase if Rate of Depreciation is given]
A machine is purchased for Rs 5,00,000. Expenses incurred on its cartage and installation Rs 1,00,000.
Calculatetheamountofdepreciation@10%p.a.accordingtoStraightLineMethodforthefirstyearendingon
31stMarch,20X2ifthismachineispurchasedon:
(a) 1stApril,20X1
(b) 1stJuly,20X1
(c) 1stOctober,20X1
(d) 1stJanuary,20X2

TotalCostofAsset=Rs5,00,000+Rs1,00,000=Rs6,00,000
AmountofDepreciation=TotalCostofAsset

Case(a) Ifdateofpurchaseis1stApril,20X1
AmountofDepreciationfor12months =Rs6,00,000
=Rs60,000
Case(b) Ifdateofpurchaseis1stJuly,20X1
AmountofDepreciationfor9months = Rs 6,00,000
=Rs45,000
Case(c) Ifdateofpurchaseis1stOctober,20X1
AmountofDepreciationfor6months =Rs6,00,000
=Rs30,000
Case(d) Ifdateofpurchaseis1stJanuary,20X2
AmountofDepreciationfor3months =Rs6,00,000
=Rs15,000

ILLUSTRATION 4 [Calculation of Profit/Loss on Sale of Asset]

XLtd.purchasedasecondhandmachineforRs5,00,000andspendRs1,00,000onitsrepairs.Depreciationis
to be provided @ 10% p.a. according to Straight Line Method. This machine is sold for Rs 4,50,000.
Accountingyearisfinancialyear.Calculatetheprofitorlossonsaleofmachineineachofthefollowing
alternativecases:
Case(a) Ifdateofpurchaseis1.4.20X1anddateofsaleis31.3.20X4
Case(b) Ifdateofpurchaseis1.4.20X1anddateofsaleis30.9.20X3
Case(c) Ifdateofpurchaseis1.7.20X1anddateofsaleis31.3.20X4
Case(d) Ifdateofpurchaseis1.7.20X1anddateofsaleis30.9.20X3

Statement showing the Calculation of Profit/Loss on Sale

Particulars Case(a) Case(b) Case(c) Case(d)
A. TotalCostofAsset
[Rs.5,00,000+Rs1,00,000] 6,00,000 6,00,000 6,00,000 6,00,000
B. Less:Depreciationfromdate
ofpurchasetodateofsale 1,80,000 1,50,000 1,65,000 1,35,000

C. Bookvalueasondateof
sale[AB] 4,20,000 4,50,000 4,35,000 4,65,000
D. Less:SaleProceeds 4,50,000 4,50,000 4,50,000 4,50,000
E. LossonSale(ProfitonSale) (30,000) (15,000) 15,000

ILLUSTRATION 5 [Journal Entries under SLM]

On1stApril20X1,TulsianLtd.purchasedasecondhandmachineforRs80,000andspentRs20,000onits
cartage,repairsandinstallation.Theresidualvalueattheendofitsexpectedusefullifeof4yearsisestimatedat
Rs40,000.On30thSept.20X2,repairs&renewalsamountedtoRs.2,000.On30thSept.20X3,thismachineis
soldforRs50,000.DepreciationistobeprovidedaccordingtoStraightLineMethod.
Required:PrepareJournal,MachineryAccountandDepreciationAccountforthefirstthreeyearsassumingthat
theaccountsareclosedon31stMarcheachyear.

Journal of Tulsian Ltd.

Date Particulars L.F. Dr.(Rs) Cr.(Rs)
01.04.X1 MachineryA/c Dr. 80,000
ToBankA/c 80,000
(Beingthemachinerypurchased)
Date Particulars L.F. Dr.(Rs) Cr.(Rs)
01.04.X1 MachineryA/c Dr. 20,000
ToBankA/c 20,000
(Beingthecartage&installationchargespaid)
31.03.X2 DepreciationA/c Dr. 15,000
ToMachineryA/c 15,000
(Beingthedepreciationprovided)
31.03.X2 Profit&LossA/c Dr. 15,000
ToDepreciationA/c 15,000
(BeingthetransferofDepreciationA/c)
31.03.X2 Repairs&RenewalsA/c Dr. 2,000
ToCashA/c 2,000
(BeingthepaymentmadeforRepairs&Renewals)
31.03.X3 DepreciationA/c Dr. 15,000
ToMachineryA/c 15,000
(Beingthedepreciationprovided)
31.03.X3 Profit&LossA/c Dr. 15,000
ToDepreciationA/c 15,000
(BeingthetransferofDepreciationA/c)
30.09.X3 DepreciationA/c Dr. 7,500
ToMachineryA/c 7,500
(Beingthedepreciationprovided)
30.09.X3 BankA/c Dr. 50,000
ToMachineryA/c 50,000
 (BeingtheMachinerysold)
30.09.X3 Profit&LossA/c Dr. 12,500
ToMachineryA/c 12,500
(BeingthetransferoflossonsaleofMachinery)
31.03.X4 Profit&LossA/c Dr. 7,500
ToDepreciationA/c 7,500
(BeingthetransferofdepreciationA/c)

Dr. Machinery Account Cr.

Date Particulars Rs Date Particulars Rs
01.04.X1 ToBankA/c 80,000 31.03.X2 ByDepreciationA/c
ToBankA/c 20,000 15,000
ByBalancec/d 85,000
1,00,000 1,00,000
01.04.X2 ToBalanceb/d 85,000 31.03.X3 ByDepreciationA/c 15,000

ByBalancec/d 70,000
85,000 85,000
01.04.X3 ToBalanceb/d 70,000 30.09.X3 ByDepreciationA/c
7,500
ByBankA/c(Sale) 50,000
ByProfit&LossA/c
(loss) 12,500
70,000 70,000
Dr. Depreciation Account Cr.
Date Particulars Rs Date Particulars Rs
31.03.X2 ToMachineryA/c 15,000 31.03.X2 ByProfit&LossA/c 15,000
31.03.X3 ToMachineryA/c 15,000 31.03.X3 ByProfit&LossA/c 15,000
30.09.X3 ToMachineryA/c 7,500 31.03.X4 ByProfit&LossA/c 7,500

WorkingNotes:
(i)CalculationoftheRateofDepreciation
Step1: CalculationofTotalCostofAsset
=Rs80,000+Rs20,000=Rs1,00,000
Step2: CalculationofAmountofDepreciationperyear
=
==Rs15,000
Step3: CalculationofRateofDepreciationunderSLM
=100
=100=15%
(ii)CalculationofProfit/LossonSaleofMachine

Rs
A. TotalCostofAsset[Rs80,000+Rs20,000] 1,00,000
B. Less:Depreciationfromdateofpurchasetodateofsale 37,500

C. BookValueasondateofsale[AB] 62,500
D. Less:SaleProceeds 50,000
E. Lossonsaleofasset[CD] 12,500
(iii) Theamountspentonrepairs&renewalson30.9.20X2isofrevenuenatureandnotofcapitalnatureand
hence,notdebitedtoMachineryAccount.

ILLUSTRATION 6 [Machinery Account when Asset is purchased

during the year]
On1stJanuary20X2,TulsianLtd.purchasedasecondhandmachineforRs80,000andspendRs20,000onits
cartage,repairsandinstallation.Theresidualvalueattheendofitsexpectedusefullifeof4yearsisestimatedat
Rs40,000.On30thSept.20X2,Repairs&Renewals,amountedtoRs2,000.On30thSept.20X3,thismachine
issoldforRs50,000.DepreciationistobeprovidedaccordingtoStraightLineMethod.
Required: PrepareMachineryAccountforthefirstthreeyearsassumingthattheaccountsareclosedon31st
Marcheachyear.

Dr. Machinery Account Cr.

Date Particulars Rs Date Particulars Rs
01.01.X2 ToBankA/c 80,000 31.03.X2 ByDepreciationA/c
ToBankA/c 20,000 3,750
(Expenses) ByBalancec/d 96,250

1,00,000 1,00,000
01.04.X2 ToBalanceb/d 96,250 31.03.X3 ByDepreciationA/c 15,000

ByBalancec/d 81,250
96,250 96,250
01.04.X3 ToBalanceb/d 81,250 30.09.X3 ByDepreciationA/c
7,500
ByBankA/c(Sale) 50,000
ByProfit&LossA/c
(loss) 23,750
81,250 81,250

WorkingNote:(i)CalculationofProfit/LossonSaleofMachine

Rs
A. TotalCostofAsset[Rs80,000+Rs20,000] 1,00,000
B. Less:Depreciationfromdateofpurchasetodateofsale 26,250

C. BookValueasondateofsale[AB] 73,750
D. Less:SaleProceeds 50,000
E. Lossonsaleofasset[CD] 23,750

(ii) Theamountspentonrepairs&renewalson30.9.20X2isofrevenuenatureandnotofcapitalnatureand
hence,notdebitedtoMachineryAccount.

ILLUSTRATION 7
XLtd.hasimportedamachineonJuly1,20X1forRs1,28,000,paidcustomsdutyandfreightRs64,000and
incurrederectionchargesRs48,000.AnotherlocalmachinerycostingRs80,000waspurchasedonJanuary1,
20X2.OnJuly,120X3aportionoftheimportedmachinery(valueonethird)gotoutoforderandwassoldfor
Rs27,840.AnothermachinerywaspurchasedtoreplacethesameforRs40,000.Depreciationtobecalculated
at20%p.a.
Required:ShowtheMachineryAccountfor20X1,20X2and20X3.

Dr. Machinery Account Cr.

Date Particulars Rs Date Particulars Rs
01.07.X1 ToBankA/c 1,28,000 31.12.X1 ByDepreciationA/c 24,000
(MachineI)
01.07.X1 ToBankA/c 64,000
(Expenses)
01.07.X1 ToBankA/c 48,000 ByBalancec/d 2,16,000
(Expenses)
2,40,000 2,40,000
01.01.X2 ToBalanceb/d: 31.12.X2 ByDepreciationA/c:
MachineI 2,16,000 MachineI 48,000
MachineII 16,000
01.01.X2 ToBankA/c 80,000 ByBalancec/d:
MachineI 1,68,000
MachineII 64,000
2,96,000 2,96,000
Date Particulars Rs Date Particulars Rs
01.01.X3 ToBalanceb/d: 01.07.X3 ByBankA/c 27,840
MachineI 1,68,000 01.07.X3 ByDepreciationA/c 8,000
MachineII 64,000
01.07.X3 ToBankA/c
MachineIII 40,000 01.07.X3 ByP&LA/c 20,160
(lossonsale)
31.12.X3 ByDepreciationA/c:
MachineI 32,000
MachineII 16,000
MachineIII 4,000
ByBalancec/d:
MachineI 80,000
MachineII 48,000
MachineIII 36,000
2,72,000 2,72,000

WorkingNotes:CalculationofProfit/LossonSaleofMachinery

Rs
A. OriginalCostofmachineryason1.7.X1(Rs2,40,0001/3) 80,000
B. Less:Depreciationfor2yearsfromdateofpurchasetodateofsale 32,000
C. BookValueasondateofsale[AB] 48,000
D. Less:SaleProceeds 27,840
E. Lossonsaleofmachinery[CD] 20,160