journal entries for depreciation with example

 

journal entries for depreciation with example

Introduction to this article: 

If you have read both the articles carefully which have written on the topic of depreciation, then now we are going to give you practical knowledge of machinery accounts. Which will further enhance your ability. We have covered all the points of depreciation accounts in this article. And for you students, all the journal entries of the machinery account along with the solution to practical problems have also been included in this article. But before this, we urge you to read our previous article completely, then you understood this article better.

ALL IMPORTANT JOURNAL ENTRIES FOR DEPRECIATION WITH EXAMPLE

Sunshine Ltd. Purchase a machine for Rs. 35000 and paid the installation charge of Rs. 10000 to the person. And the company divided to charge depression @ 15% as per the Written Down Value (WDV) method.

Machinery A/c............................................ Dr.   35000

     To Bank A/C....................................................            35000

Installation Charge A/C ....................................... Dr. 10000

             To Bank A/C................................................................    10000

Depreciation A/C........................................ Dr.  6750

        To Machinery A/C..........................                        6750

Combined Entries for Machine Purchase

Machinery/ Assets A/C................................ Dr. (Cost Price)

Installation Charge A/C............................ Dr. (Charges Paid)

                           To Bank A/C..........................................  (Cost Price + Charges Paid)

After a Depreciation of 2 years, the company decided to sell the machine @ Rs. 50000 at profit.

Depreciation A/C ..........Dr. (45000-6750)*15% = 5741.25

                                                To Machinery A/C........................................      5741.25

Bank A/C .................................................Dr. 50000

            To Machinery A/C...................................................50000

                  Machinery A/C ............... Dr. = 45000-(6750+5741.25)-50000 = 27508.75

To Profit & Loss A/C ......................                                          27508.75

Combined Entries for Profit on Sale

An old asset can be sold for purchase of the new assets at the end of the life of an asset or after a period of time. But it is not always possible to sell an asset at book value on the date of purchase. For this reason, profit or loss on the sale of an asset may rise. The journal entries for sale of an asset and profit & Loss on sale are given below: 

Bank A/C......................................................... Dr. (Selling Price)

Depreciation A/C.................................. Dr.(Depreciation amount)

To Machinery/ Assets A/C................................. (Book Value)

To Profit & Loss A/C.............................. (Defiance amount)

Suppose Sunshine Ltd. Sold the machine @ Rs. 20000, at loss then how to pass journal entries for this transaction.

Bank A/C Dr.................................................... 20000

                To Sales A/C............................................................  20000

          Depreciation A/C....................Dr. =6750+5741.25 = 12491.25

               To Machinery. A/C............................                         12491.25

Profit & Loss A/C..................Dr. = (45000-12491.25)-20000 = 12508.75

                     To Machinery A/C......................................................................12508.75

Combined Entries for Loss on Sale 

Bank A/C............................................................ Dr.(Selling Price)

Depreciation A/C............................. Dr.(Current Year Depreciation)

Profit & Loss A/C......................................... Dr.(Difference amount)

To Machinery/Assets A/C.............................................. (Book Value)

On 1 Jan 2018, a Machinery was purchased for Rs. 1,20,000. On 01 Jun 2019 additions were made to the amount of Rs. 50,000. On 31 Mar 2020 machinery was purchased on 1 Jul 2019, costing Rs. 18000 was sold for Rs. 15000 and on 30 Jun 2020, machinery was purchased on 01 Jan 2018, costing Rs. 45000 was sold for Rs. 35200. On 01 Oct 2020 addition were made to the amount of Rs. 25000. Depreciation was provided at 15% p.a. on the diminishing balance method. 

Show the Machinery Account for the three years from 2018 to 2020 (Year ended on 31st December)

MACHINERY ACCOUNT

AS ON 31-12-2020

The calculation for Loss of Sales

            

Date	Particular	Amount
01-07-19	Cost of Machine	18000
31-12-19	Less: Depreciation	1350
	Balance as on 01-01-2020	16650
31-03-20	Less: Depreciation	624.375
	Balance as on selling dated	16025.625
31-03-20	Less: Selling Price	15000
31-03-20	Loss on Sales	1025.625

The calculation for Profit on Sales

Date	Particular	Amount
01-01-18	Cost Price of Machine	45,000.00
31-12-18	Less: Depreciation	6,750.00
	Balance as on 01-01-2019	38,250.00
31-12-19	Less: Depreciation	5,737.50
	Balance as on 30-06-2020	32,512.50
30-06-20	Less: Depreciation	2,438.44
	Balance as on Selling Dated	30,074.06
30-06-20	Less: Selling Price	35,200.00
30-06-20	Profit on sale of machine	(5,125.94)

Depreciation on Remaining Cost of First Machine

Date	Particular	Amount
01-01-18	Cost Price of Machine	120,000.00
30-06-20	Less: Selling Portion	45,000.00
	Remaining Cost	75,000.00
31-12-18	Less: Depreciation	11,250.00
	Balance as on 01-01-2019	63,750.00
31-12-19	Less: Depreciation	9,562.50
	Balance as on 01-01-2020	54,187.50
31-12-20	Less: Depreciation	8,128.13

Depreciation of Remaining cost of Second Machine

Date	Particular	Amount
30-06-19	Cost Price of Machine	50000
31-03-20	Less: Selling Portion	18000
30-06-19	Remaining Cost	32000
31-12-19	Less: Depreciation	4800
	Balance as on 01-01-2020	27200
31-12-20	Less: Depreciation	4080

Calculation of Total Amount of Depreciation

Date	Particular	Amount
01-10-20	New Machine Purchase	25000
31-12-20	Less: Depreciation on 3 Months	937.5
31-12-20	Total Amount of Depreciation	13,145.63

Conclusions

If you want to make machinery accounts well, then you have to keep in mind how much time you have used your machine in your business. The depreciation value up to that day minus your machinery purchase cost to get the actual remaining cost price. The profit or loss is determined by subtracting the selling price from the actual remaining cost price. 

If the selling price is higher than your remaining cost price, you will make a profit. 

But if your selling price is less than the actual remaining cost price then you will bear the loss on the sale of the machine.

The purchase price of an asset, development expenses, carriage or fright on the asset, duty or tax, and installation expenses are to be included in the determination of the cost of the assets.

How to calculate depreciation, if an installation charge is given?

At First add, the installation charge the cost price of the assets or machinery then charges the percentage of depreciation.

How to calculate 6 months depreciation values?

you can follow this calculation: Cost Price x Rate of depreciation x 6/12

How to calculate 3 months depreciation?

you can follow this calculation: Cost Price x Rate of depreciation x 3/12.

How to calculate the profit on the sale of the machine?

When the selling price is higher than your remaining cost price, you will make a profit.

How to calculate the loss on the sale of the machine?

When the selling price is less than the actual remaining cost price then you will bear the loss on the sale of the machine.