Prepare Machine Account and Depreciation Account in the books of Max Co. Ltd. for the first three years. The accounts are closed on 31st March every year.

Steps to Solve

1. Determine the Cost of the Machines

For the first machine:

• Purchase cost: Rs. 200,000
• Installation cost: Rs. 20,000

Total cost of the first machine: $$ \text{Total Cost} = 200,000 + 20,000 = 220,000 \text{ Rs.} $$

For the second machine:

• Purchase cost: Rs. 100,000

2. Calculate Depreciation for Each Year

The depreciation rate is 10% per annum on a straight-line basis.

For the first machine:

• Depreciation per annum: $$ \text{Depreciation} = \frac{\text{Cost}}{\text{Life}} = 220,000 \times 0.10 = 22,000 \text{ Rs.} $$

For the second machine:

• Since it is purchased on 30.09.2015, it will be depreciated from 01.10.2015 for half a year for the first year.
• Depreciation for half year: $$ \text{Depreciation} = 100,000 \times 0.10 \times \frac{6}{12} = 5,000 \text{ Rs.} $$

3. Prepare the Depreciation Account for Each Year

Depreciation entries for three years will be:

• Year 1 (2014-2015): Rs. 22,000 (first machine) + Rs. 0 (second machine)
• Year 2 (2015-2016): Rs. 22,000 (first machine) + Rs. 10,000 (second machine)
• Year 3 (2016-2017): Rs. 22,000 (first machine) + Rs. 10,000 (second machine)

4. Prepare the Machine Account

For the first machine:

• Balance brought forward and depreciation charged for the first three years.

For the second machine:

• Include purchase on 30.09.2015 and calculate its treatment till sale on 01.01.2017.

Closing entries for Machine Account will reflect the balances after each year's depreciation.

5. Calculate the Profit or Loss on Sale of Machine

The cost of the second machine:

• Acquisition cost: Rs. 100,000
• Depreciation charged until sale: $$ \text{Period until Sale} = 1.25 \text{ years} $$ Total depreciation until sale: $$ \text{Total Depreciation} = 5,000 + 10,000 = 15,000 $$ Book Value at sale: $$ \text{Book Value} = 100,000 - 15,000 = 85,000 $$ Sale Price: Rs. 90,000 Profit on Sale: $$ \text{Profit} = \text{Sale Price} - \text{Book Value} = 90,000 - 85,000 = 5,000 \text{ Rs.} $$