VMA Corporation purchased an office Equipment for Rs. 650,000 with estimated life of 10 years and salvage value of Rs. 50,000 on April 05, 2012. They used Straight Line Method for charging Depreciation. On September 23, 2016 they exchanged this Equipment with a new one having price of Rs. 800,000. At time of exchange the trade in allowance was agreed at 350,000. For this new machine they decided to use Diminishing Balance Method at 30%. The new equipment was sold on Feb 3rd, 2021 at 25% of its purchase price. They use monthly policy of charging Depreciation. Their accounting year ends on December 31st each year. Required: Prepare General Journal for all above accountable event especially Exchange and Sale of Equipment in chronological order. (Assume profit or loss is being recognized at the time of disposal)
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.
VMA Corporation purchased an office Equipment for Rs. 650,000 with estimated life of 10 years and salvage value of Rs. 50,000 on April 05, 2012. They used
Required:
Prepare General Journal for all above accountable event especially Exchange and Sale of Equipment in chronological order. (Assume profit or loss is being recognized at the time of disposal)
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