Recording Depreciation :

Depreciation is directly charged against the asset by debiting Depreciation account and crediting the Asset account. Depreciation
account is closed by transferring to Profit and Loss account at the end of the year. The entries will be as under:

1) For the amount of depreciation to be provided at the end of the year

 

 

2) For transferring the amount of depreciation at the end of the year.

Asset Account will be shown at cost less depreciation i.e., written down value at the end of the year in the Balance sheet.

Illustration :
Raheem & Co. purchased a fixed asset on 1.4.2000 for Rs.2,50,000. Depreciation is to be provided @10% annually according to the Straight line method. The books are closed on 31st March every year.

Pass the necessary journal entries, prepare Fixed asset Account and Depreciation Account for the first three years.

Solution:

In the Books of Raheem & Co.
Journal Entries

Date	Particulars	Debit Rs.	Credit Rs.
2000 Apr 1	Fixed asset A/c                                                                Dr.	2,50,000
	To Bank A/c		2,50,000
	(Fixed asset purchased)
2001 Mar 31	Depreciation A/c                                                             Dr	25,000
	To Fixed asset A/c		25,000
	(Depreciation provided)
2001 Mar 31	’’ Profit & Loss A/c                                                            Dr
	To Depreciation A/c	25,000
	(Depreciation transferred to Profit & Loss A/c)		25,000
2002 Mar 31	Depreciation A/c                                                             Dr	25,000
	To Fixed asset A/c		25,000
	(Depreciation provided)
2002 Mar 31	’’ Profit & Loss A/c                                                           Dr	25,000
	To Depreciation A/c		25,000
	(Depreciation transferred to Profit & Loss account)
2003 Mar 31	Depreciation A/c                                                           Dr	25,000
	To Fixed asset A/c		25,000
	(Depreciation provided)
2003 Mar 31	’’ Profits & Loss A/c                                                       Dr	25,000
	To Depreciation A/c		25,000
	(Depreciation transferred to Profit & Loss A/c)

 

Fixed Asset Account
Dr.                                                                                                                                                                                                                                                  Cr.

Date	Particulars	Rs.	Date	Particulars	Rs.
2000			2001
Apr 1	To Bank A/c	2,50,000	Mar 31	By Depreciation A/c	25,000
			“	By Balance c/d	2,25,000
		2,50,000			2,50,000
2001			2002
Apr 1	To Balance b/d	2,25,000	Mar 31	By Depreciation A/c	25,000
			“	By Balance c/d	2,00,000
		2,25,000			2,25,000
2002			2003
Apr 1	To Balance b/d	2,00,000	Mar 31	By Depreciation A/c	25,000
			“	By Balance c/d	1,75,000
		2,00,000			2,00,000
2003
Apr 1	To Balance b/d	1,75,000

Depreciation Account

Dr.                                                                                                                                                                                                                                                  Cr.

Date	Particulars	Rs.	Date	Particulars	Rs.
2001			2001
Mar 31	To Fixed Asset A/c	25,000	Mar 31	By Profit & Loss A/c	25,000
		25,000			25,000
2002			2002
Mar 31	To Fixed Asset A/c	25,000	Mar 31	By Profit & Loss A/c	25,000
		25,000			25,000
2003			2003
Mar 31	To Fixed Asset A/c	25,000	Mar 31	By Profit & Loss A/c	25,000
		25,000			25,000

 

Illustration : 

A Company purchased Machinery for Rs.50,000 on 1st Apri12002. It is depreciated at 10% per annum on Written Down Value method. The accounting year ends on 31st March of every year.

Pass necessary Journal entries, prepare Machinery account and Depreciation account for three years.

Solution:

Journal Entries

Date	Particulars	L.F.	Debit Rs.	Credit Rs.
2002
Apr 1	Machinery A/c                                              Dr		50,000
	To Bank A/c			50,000
	(Machinery purchased)
2003
Mar 31	Depreciation A/c                                          Dr		5,000
	To Machinery A/c			5,000
	(Depreciation provided)
99	Profit & Loss A/c                                           Dr		5,000
	To Depreciation A/c			5,000
	(Depreciation provided)
2004
Mar 31	Depreciation A/c                                          Dr		4,500
	To Machinery A/c			4,500
	(Depreciation provided)
99	Profit & Loss A/c                                          Dr		4,500
	To Depreciation A/c			4,500
	(Depreciation transferred  to Profit & Loss account)
2005
Mar 31	Depreciation A/c                                          Dr		4,050
	To Machinery A/c			4,050
	(Depreciation provided)

	Profit & Loss A/c                                          Dr		4,050
	To Depreciation A/c			4,050
	(Depreciation transferred to Profit and Loss Account)

 

Ledger Accounts
Machinery Account
Dr.                                                                                                                                                                                                                                                Cr.

Date	Particulars	Rs.	Date	Particulars	Rs.
2002			2003
Apr 1	To Bank A/c	50,000	Mar 31	By Depreciation A/c	5,000
			“	By Balance c/d	45,000
		50,000			50,000
2003			2004
Apr 1	To Balance b/d	45,000	Mar 31	By Depreciation A/c	4,500
			“	By Balance c/d	40,500
		45,000			45,000
2004			2005
Apr 1	To Balance b/d	40,500	Mar 31	By Depreciation A/c	4,050
			“	By Balance c/d	36,450
		40,500			40,500
2005
Apr 1	To Balance b/d	36,450

 

 

Depreciation Account

Dr.                                                                                                                                                                                                                                                 Cr.

Date	Particulars	Rs.	Date	Particulars	Rs.
2003			2003
Mar 31	To Machinery A/c	5,000	Mar 31	By Profit & Loss A/c	5,000
		5,000			5,000
2004			2004
Mar 31	To Machinery A/c	4,500	Mar 31	By Profit & Loss A/c	4,500
		4,500			4,500
2005			2005
Mar 31	To Machinery A/c	4,050	Mar 31	By Profit & Loss A/c	4,050
		4,050			4,050