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DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH

Name : Y.Yella Reddy


Designation : HCCP
Branch : DCCP
Institute :026,S.G.Govt.Polytechnic,Adilabad
Year/Semester : III Semester
Subject : Accountancy-II
Subject Code : CCP-302
Topic : Depreciation
Duration : 50 Min.
Sub Topic : Problems on Diminishing Balance
Method
Teaching Aids : Animations.
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Objectives

On completion of this period you would be


able to solve

 Problems on Diminishing Balance Method.

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Recap:
 In the last class we learned about
 Concept of Depreciation under Diminishing
Balance Method
 Advantages
 Disadvantages
 Differences between Fixed Instalment Method and
Diminishing Balance Method

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Illustration:

• Mr.Venu acquired a machine on 1st January, 2004 at


a cost of Rs.36,000 and spent Rs.4,000 on it’s
installation.

Depreciation is charged at 10% on diminishing


balance method

Pass journal entries and prepare the Machinery and


Depreciation account for three years.

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Solution:-
Journal Entries

Date Particulars Debit (Rs) Credit (Rs)

I year Machinery a/c Dr 40,000


To Bank a/c 40,000
(Being Machinery purchased)

Depreciation a/c Dr 4,000


To Machinery a/c 4,000
(Being the Depreciation is calculated
for I year)
P&L a/c Dr 4,000
To Depreciation a/c (Being the 4,000
Depreciation is transferred to P&L a/c)
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Journal Entries

Date Particulars Debit (Rs) Credit


(Rs)
II year Depreciation a/c Dr 3,600
To Machinery a/c 3,600
(Being the Depreciation is calculated
for I year)
P&L a/c Dr 3,600
To Depreciation a/c (Being the 3,600
Depreciation is transferred to P&L
a/c)

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Journal Entries

Date Particulars Debit (Rs) Credit


(Rs)
III year Depreciation a/c Dr 3,240
To Machinery a/c 3,240
(Being the Depreciation is calculated
for I year)
P&L a/c Dr 3,240
To Depreciation a/c (Being the 3,240
Depreciation is transferred to P&L
a/c)

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Machinery Account
Dr Cr

Rs. Rs.
I yr To Cash a/c 40,000 By Depreciation 4,000
(40,000*10/100)
,, Balance c/d 36,000
40,000 40,000
II yr To Bal b/d 36,000 By Depreciation 3,600
,, Bal c/d 32,400
36,000 36,000
III yr To Bal b/d 32,400 By Depreciation 3,240
,, Bal c/d 29,160
32,400 32,400
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Depreciation Account

Particulars Rs. Particulars Rs.


I yr To Machinery a/c 4,000 By P&L a/c 4,000

4,000 4,000
II yr To Machinery a/c 3,600 By P&L a/c 3,600

3,600 3,600
III yr To Machinery a/c 3,240 By P&L a/c 3,240

3,240 3,240

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Illustration

1. Raghu & co. purchased a machinery costing Rs.


50,000 on 1-1-2002.
The rate of depreciation is ascertained @ 10%
calculated on reducing balance method.
Pass necessary journal entries and show the
Machinery a/c and Depreciation a/c for the two
years.

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Sol:
Journal Entries
Debit Credit
Date Particulars L.F Rs. Rs.
2002
Jan 1 Machinery a/c Dr. 50000
To Bank a/c 50000

31-Dec Depreciation a/c 5000


To Machinery a/c 5000

31-Dec Profit and Loss a/c Dr. 5000


To Depreciation a/c 5000

2003
Dec 31 Depreciation a/c Dr. 4500
To Machinery a/c 4500

31-Dec Profit and Loss a/c Dr. 4500


To Depreciation a/c 4500
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Machinery Account
Dr. Cr
Date Particulars Rs. Date Particulars Rs.
2002 2002 By Depreciation
Jan 1 To Bank a/c 50,000 Dec. 31 5000
" By Balance c/d 45000
50000 50000

2003 2003
Jan 1 To Bal b/d 45000 Dec. 31 By Depreciation 4500
By Balance c/d 40500
45000 45000

2004
Jan 1 To Bal b/d 40500
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Depreciation Account
Dr. Cr
Date Particulars Rs. Date Particulars Rs.
2002 2000
Dec.31 To Machinery a/c 5,000 Dec. 31 By Profit & Loss a/c 5000

2003 2001
Dec. 31 To Machinery a/c 4500 Dec. 31 By Profit & Loss a/c 4500

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Assignment

Seetha purchased machinery for Rs.8,000 on 1st Jan. 2007


and spent Rs.2,000 on its installation.
She charges depreciation @5% on Diminishing Balance
Method
Pass necessary Journal entries and prepare Machinery
Account and Depreciation Account for the first five years.

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