CHAPTER # 1:

Q: 1: Depreciation:
On March 30, 2017 Kenwood Company purchased a machine at a list price of Rs.500,000, subject to a
trade discount of 10% under the credit term 2/10, n/30. The payment was made on April 5, 2017. The
paid the following expenditure to acquire machine:
(a) Sales tax @ 17% (b) Transportation in Rs.20,230
(c) Insurance in transit Rs.3,800 (d) Custom duty and import duty Rs.7,000
(e) Fine on negligent driving Rs.1,000 (f) Installation and testing charges Rs.15,000
(g) Labour charges Rs.8,000 (h) Foundation cost Rs.3,000
(i) 3 Year fire insurance Rs.9,000 (j) Repair charges during installation Rs.6,000
Its residual value was estimated at Rs.73,000. The life is to be estimated in 10 years, in units 250,000
and in hours 100,000. The company’s accounting year ends on December 31 each year.
REQUIRED
(a) Compute the cost of machine.
(b) Record the purchase of machine.
(c) Classify the above payments into capital expenditure and revenue expenditure.
(d) Calculate the depreciation expense for 2017, 2018 and 2019 under the following methods separately:
(i) Straight Line Method.
(ii) Diminishing Balance Method @ 20%.
(iii) Units Production Method assuming machine produced 17,000 units in the year 2017,
20,000 units in the year 2018 and 18,000 units in the year 2019.
(iv) Working Hours Methods assuming that machine has worked 1,500 hours in the year 2017,
2,000 hours in the year 2018 and 2,300 hours in the year 2019.
(e) Prepare adjusting and closing journal entries on December 31, 2017, 2018 and 2019 under Diminishing
Balance Method.
(f) Prepare allowance for depreciation account from 2017 to 2019 under Diminishing Balance Method.
(g) Prepare partial balance sheet on December 31, 2019 under each method separately.