Question

Bharat Ltd. which depreciates its machinery at 10% p.a. straight line basis, had on 1st April, 2016 Rs.28,000 to the debit of Machinery Account. On 31st March, 2017, the company decided to change the method of depreciation to diminishing balance method with effect from 1st April, 2013 being the date of purchase of machine and the rate of depreciation remaining the same. There was no purchase/sale of machine after 1st April, 2013. Pass the necessary journal entry on account of change in method of depreciation.

Answer 1

Cost as on 01.04.2016 = Rs.28,000/0.70 = Rs. 40,000

A. Total Depreciation under Old Method = Rs.40,000 - Rs.28,000 = Rs.12,000

B. Total Depreciation under New Method = Rs.40,000 -[40,000 × 90%, × 90% × 90%] = Rs.10,840

C. Excess Depreciation to be written back Rs.1,160