Sialkot Steel Works, a sole proprietorship, recognises depreciation on plant and machinery at 20% per annum reducing balance. On July 1, 2012 the balances on the plant and machinery and accumulated depreciation accounts were Rs. 712,000 and Rs. 240,000 respectively. Depreciation is recognised from the month of purchase. During 2012-2013 it the auditors discovered that a repair which cost Rs. 25,000 and incurred on October 1, 2010 had been capitalised incorrectly. It was decided to correct this mistake while finalising the accounts for the year ended June 30, 2013. Only one machine was purchased during the year ended June 30, 2013 costing Rs. 60,000. The machine was received in the factory on October 1, 2012 and was installed on January 1, 2013. Required Plant and machinery account and accumulated depreciation account for the year ended June 30, 2013. (Show all workings)
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.
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Sialkot Steel Works, a sole proprietorship, recognises
depreciation on plant and machinery at 20% per annum reducing balance. On July 1, 2012 the balances on the plant and machinery andaccumulated depreciation accounts were Rs. 712,000 and Rs. 240,000 respectively. Depreciation is recognised from the month of purchase. During 2012-2013 it the auditors discovered that a repair which cost Rs. 25,000 and incurred on October 1, 2010 had been capitalised incorrectly. It was decided to correct this mistake while finalising the accounts for the year ended June 30, 2013. Only one machine was purchased during the year ended June 30, 2013 costing Rs. 60,000. The machine was received in the factory on October 1, 2012 and was installed on January 1, 2013. Required Plant and machinery account and accumulated depreciation account for the year ended June 30, 2013. (Show all workings)
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