Page 223 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes Original cost of the Machinery ` 10,000
(-) Depreciation ` 3,000
Machinery worth for sale ` 7,000

(-) Machinery sold ` 5,000
Loss on sale of the portion of the machinery sold ` 2,000
The entry for the loss on sale of machinery sold
Loss on sale a/c Dr ` 2,000
To Machinery a/c ` 2,000
The next entry is for the adjusted profit and loss account.

Adjusted Profit & Loss A/c Dr ` 2,000
To Loss on sale a/c ` 2,000
Dr Machinery A/c Cr

Particulars ` ` Particulars ` `
To Balance B/d 1,05,000 By Cash (Sales) 5,000
By Provision for Depreciation 3,000
By loss on sale(Adjusted profi t and 2,000
loss account)
By Balance c/d 95,000
1,05,000 1,05,000
The next one is the provision for depreciation account or accumulated depreciation account.
Dr Provision for Depreciation A/c Cr

Particulars ` Particulars `
`
`
To Machinery A/c 3,000 By Balance B/d 25,000
To Balance c/d 40,000 By depreciation provided during the 18,000
current year
43,000 43,000

The next non-current liability account to be prepared is that capital account.
In the additional information net profit for the year 2006 ` 45,000 is given.

Net profit is transferred to capital account.
Why the net profit is transferred to capital account?

Income earned in the form of net profit should be added to the capital account.

Net profit A/c Dr ` 45,000

To Capital A/c ` 45,000
Dr Capital A/c Cr

Particulars ` Particulars `

To Drawings (Balancing fig.) 17,000 By Balance B/d 1,25,000
To Balance c/d 1,53,000 By Net profi t 45,000
1,70,000 1,70,000

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