Question

 A Firm purchased an old Machinery for RM37,000 on 1 January, 2017 and spent RM3,000 on its overhauling. On 1 July 2018, another machine was purchased for RM 10,000. On 1 July 2019, the machinery which was purchased on 1 January 2017, was sold for RM28,000 and the same day a new machinery costing RM25,000 was purchased. On 1 July, 2020, the machine which was purchased on 1 July, 2018 was sold for RM2,000. Depreciation is charged at 10% per annum on straight line method. The firm changed the method and adopted diminishing balance method with effect from 1 January, 2018 and the rate was increased to 15% per annum. The books are closed on 31 December every year.

 Required:

 Prepare Machinery account for four years from 1 January, 2017.

Answer 1

Retrospective Adjustment is given in case of change in method of charging depreciation.

Cl. Balance as per Normal SLM = 36,000 AND Cl. Balance after 1st year WDV = 34,000. So, Additional Deprexiatiob adjustment due to change = 36,000 - 34,000 = 2,000

Depreciation is charge as per asset was consumed during the year.

When asset is sold, cost is to reduced from asset account . Corresponding profit or loss on sale will be adjusted in profit and loss account.