On April 01, 2015, following balances appeared in the books of M/s Kanishka Traders: Furniture account Rs. 50,000, Provision for depreciation on furniture Rs. 22,000. On October 01... On April 01, 2015, following balances appeared in the books of M/s Kanishka Traders: Furniture account Rs. 50,000, Provision for depreciation on furniture Rs. 22,000. On October 01, 2015 a part of furniture purchased for Rupees 20,000 in April 01, 2011 was sold for Rs. 5,000. A new furniture costing Rs. 25,000 was purchased. The depreciation was provided @ 10% p.a. on original cost of the asset and no depreciation was charged on the asset in the year of sale. Prepare furniture account and provision for depreciation account for the year ending March 31, 2016.
Understand the Problem
The question requires preparing a furniture account and a provision for depreciation account for a specific period, based on provided balances and transactions.
Answer
The closing balance of the Furniture Account is Rs. 70,000 and the Provision for Depreciation is Rs. 28,250.
Answer for screen readers
The furniture account and provision for depreciation account as of March 31, 2016 are as follows:
Furniture Account
- Opening Balance: Rs. 50,000
- Purchases: Rs. 25,000
- Sale: Rs. 5,000
- Closing Balance: Rs. 70,000
Provision for Depreciation Account
- Opening Provision: Rs. 22,000
- Depreciation: Rs. 6,250
- Closing Provision: Rs. 28,250
Steps to Solve
-
Opening Balances
Start with the initial balances on April 01, 2015:
- Furniture Account: Rs. 50,000
- Provision for Depreciation: Rs. 22,000
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Calculate Depreciation on Existing Furniture
The depreciation is provided at 10% per annum. Calculate it for the existing furniture:
- Depreciation = $50,000 \times 10% = Rs. 5,000$
-
Selling Furniture
On October 01, 2015, a part of furniture purchased for Rs. 20,000 was sold for Rs. 5,000.
- The original cost of the sold furniture is Rs. 20,000, but it’s already depreciated.
- No depreciation is charged on this furniture for the year of sale.
-
Record Sale in Furniture Account
Deduct the amount received from the sale from the furniture account:
- Remaining balance = $50,000 - Rs. 20,000 + Rs. 25,000 (new furniture) - Rs. 5,000 (sale) = Rs. 50,000$
-
Depreciation on New Furniture
For the new furniture purchased on October 01, 2015:
- Since the depreciation rate is 10%, calculate for 6 months (from Oct 01, 2015 to Mar 31, 2016):
- Depreciation = $25,000 \times 10% \times \frac{6}{12} = Rs. 1,250$
-
Provision for Depreciation Account Calculation
The total provision for depreciation account at the end of the year:
- Existing Provision = Rs. 22,000
- Add new depreciation = Rs. 5,000 (from existing) + Rs. 1,250 (from new) = Rs. 6,250
- New Total Provision = $Rs. 22,000 + Rs. 6,250 = Rs. 28,250$
The furniture account and provision for depreciation account as of March 31, 2016 are as follows:
Furniture Account
- Opening Balance: Rs. 50,000
- Purchases: Rs. 25,000
- Sale: Rs. 5,000
- Closing Balance: Rs. 70,000
Provision for Depreciation Account
- Opening Provision: Rs. 22,000
- Depreciation: Rs. 6,250
- Closing Provision: Rs. 28,250
More Information
This calculation is significant for keeping track of the value of furniture as it gets used and depreciated over time. Proper accounting ensures accurate financial reports and calculations of asset value.
Tips
- Forgetting to account for depreciation on new furniture within the same financial year.
- Miscalculating the proportion of depreciation for half-year calculations.
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