National company acquired a machine on January 01, 2005 at a list price of Rs. 565, 000 with a trade discount of 2%. The terms of payment was 3/10, n/30, including a sales tax of 4%. The Co. availed the concession period of payment. The Co. also incurred the following expenses: Transportation charges Rs. 15,000 Installation and testing charges Rs. 20,000 Package charges Rs. 5,000 Insurance in transit Rs. 25,000 The company also paid Rs. 3,500 as a fine on account of negligent driving by one of the company’s driver while transporting the machinery. During installation work of the machinery, adjacent machinery was damaged and repair cost paid Rs. 9,000. License fee paid for the operation of the machinery Rs. 30,000 for the current year. An amount of Rs. 24,400 was paid as fire insurance premium on a three years policy. It is estimated that the machinery has a scrap value of Rs. 100,000 at the end of its estimated service life of 8 years. On December 31st, 2009 machine was sold at Rs. 150,000. Required a. Compute the cost and gain or loss on sale of machine. b. Prepare journal entries in proper form to record the purchase of machine and disposal of machine Note: Entries without computation will not be accepted
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Q # 2
National company acquired a machine on January 01, 2005 at a list price of Rs. 565, 000 with a trade discount of 2%. The terms of payment was 3/10, n/30, including a sales tax of 4%. The Co. availed the concession period of payment. The Co. also incurred the following expenses:
Transportation charges Rs. 15,000
Installation and testing charges Rs. 20,000
Package charges Rs. 5,000
Insurance in transit Rs. 25,000
The company also paid Rs. 3,500 as a fine on account of negligent driving by one of the company’s driver while transporting the machinery. During installation work of the machinery, adjacent machinery was damaged and repair cost paid Rs. 9,000. License fee paid for the operation of the machinery Rs. 30,000 for the current year. An amount of Rs. 24,400 was paid as fire insurance premium on a three years policy.
It is estimated that the machinery has a scrap value of Rs. 100,000 at the end of its estimated service life of 8 years. On December 31st, 2009 machine was sold at Rs. 150,000.
Required
a. Compute the cost and gain or loss on sale of machine.
b. Prepare
Note: Entries without computation will not be accepted
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