Page 117 - ISCDEBK-XI

15.2 Double Entry Book Keeping—ISC XI

• An addition or extension to an existing asset which is of a capital nature and which becomes an integral
part of the existing asset, is depreciated over its estimated useful life.
• Heavy repairs which are of capital nature and which increase the useful life of the assets, are also added
to cost of such assets.
• All expenses which are incurred till the asset is ready for use such as freight, installation cost are included
in cost of the asset.
• GST (CGST and SGST or IGST) Paid on purchase of asset is not a cost because it is set off against GST
Collected. Hence, Asset Account is debited by the net amount, i.e., Gross Value – GST Paid.

Solved Questions

Illustration 1.
A firm, whose accounting year is the Financial year, purchased on 1st July, 2017 machinery
costing ` 30,000.
It purchased further machinery on 31st December, 2017 costing ` 20,000 and on 1st October,
2018 costing ` 10,000.
On 1st April, 2019, one-third of the machinery installed on 1st July, 2017 became obsolete and
was sold for ` 3,000.
Show Machinery Account as it would appear in the books of the firm, it being given that
machinery was depreciated by Fixed Instalment Method @ 10% p.a.
What would be the value of Machinery Account on 1st April, 2020?
Solution:
Dr. MACHINERY ACCOUNT Cr.
Date Particulars ` Date Particulars `
2017 2018
July 1 To Bank A/c (Mach. I) 30,000 March 31 By Depreciation A/c:
Dec. 31 To Bank A/c (Mach. II) 20,000 Mach. I
(` 30,000 × 10/100 × 9/12) 2,250
Mach. II
(` 20,000 × 10/100 × 3/12 ) 500 2,750
March 31 By Balance c/d:
Mach. I ` (30,000 – 2,250) 27,750
Mach. II ` (20,000 – 500) 19,500
50,000 50,000
2018 2019
April 1 To Balance b/d: March 31 By Depreciation A/c:
Mach. I 27,750 Mach. I
Mach. II 19,500 (` 30,000 × 10/100 ) 3,000
Oct. 1 To Bank A/c (Mach. III) 10,000 Mach. II
(` 20,000 × 10/100) 2,000
Mach. III
(` 10,000 × 10/100 × 6/12) 500 5,500
March 31 By Balance c/d:
Mach. I
` (27,750 – 3,000) 24,750
Mach. II
` (19,500 – 2,000) 17,500
Mach. III
` (10,000 – 500) 9,500 51,750
57,250 57,250