On Jan 01, 2012 Jain & Sons purchased a second-hand plant costing Rs. 2,00,000 and spent Rs. 10,000 on its overhauling. They also spent Rs. 5,000 on transportation and installation... On Jan 01, 2012 Jain & Sons purchased a second-hand plant costing Rs. 2,00,000 and spent Rs. 10,000 on its overhauling. They also spent Rs. 5,000 on transportation and installation. The plant was destroyed by fire on July 31, 2015, and an insurance claim of Rs. 50,000 was admitted. Prepare the plant account and accumulated depreciation account assuming the company closes its books on December 31 every year.

Understand the Problem

The question pertains to accounting, specifically the preparation of a plant account and accumulated depreciation account for a company, considering the purchase, additional expenses, depreciation, and an insurance claim due to fire loss.

Answer

The remaining balance of the plant account is $88,064$ with a net loss of $38,064$ after the insurance claim.

Steps to Solve

Calculate Initial Cost of the Plant

The initial cost includes the purchase price, overhaul costs, and transportation.

Initial Cost = Purchase Cost + Overhauling Cost + Transportation Cost
= Rs. 200,000 + Rs. 10,000 + Rs. 5,000
= Rs. 215,000

Determine Written Down Value and Depreciation Calculation

The plant will be depreciated at 20% of the written down value. We will calculate for each year until the fire.

Year 1 (2012):
Depreciation = $215,000 \times 0.20 = Rs. 43,000$
Written Down Value = $215,000 - Rs. 43,000 = Rs. 172,000$
Year 2 (2013):
Depreciation = $172,000 \times 0.20 = Rs. 34,400$
Written Down Value = $172,000 - Rs. 34,400 = Rs. 137,600$
Year 3 (2014):
Depreciation = $137,600 \times 0.20 = Rs. 27,520$
Written Down Value = $137,600 - Rs. 27,520 = Rs. 110,080$
Year 4 (2015):
Depreciation = $110,080 \times 0.20 = Rs. 22,016$
Written Down Value = $110,080 - Rs. 22,016 = Rs. 88,064$

Determine the Loss from Fire and Insurance Claim

The plant was destroyed by fire with a written down value just before the incident.

Loss from Fire = Written Down Value = Rs. 88,064
Insurance Claim = Rs. 50,000

Net Loss = Loss from Fire - Insurance Claim
= Rs. 88,064 - Rs. 50,000
= Rs. 38,064

Prepare the Plant Account and Accumulated Depreciation Account

Plant Account

Date         Particulars        J.F.    Amount (Rs) 
Jan 1, 2012  To Plant Purchase               200,000
             To Overhauling                    10,000
             To Transportation                 5,000 
                            To Balance c/d        88,064
             By Fire Loss                                88,064

Accumulated Depreciation Account

Date         Particulars        J.F.    Amount (Rs) 
Dec 31, 2012  By Depreciation                     43,000
Dec 31, 2013  By Depreciation                     34,400
Dec 31, 2014  By Depreciation                     27,520
Dec 31, 2015  By Depreciation                     22,016

Final Account Balances

Total Depreciation = Rs. 43,000 + Rs. 34,400 + Rs. 27,520 + Rs. 22,016
= Rs. 126,936

Plant Account Balance = Rs. 215,000 - Rs. 126,936 = Rs. 88,064

The remaining balance of the plant account after the fire is $88,064$, with a net loss of $38,064$ after the insurance claim.

More Information

This calculation reflects the overall financial impact of the plant acquisition, maintenance, depreciation, and loss incurred from the fire incident. This information is vital for understanding asset management within accounting.

Tips

Forgetting to include all initial costs when calculating the total cost of the plant.
Not applying the correct depreciation method or forgetting to update the written down value each year.
Miscalculating the insurance claim against the loss.

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