 Basic Concept – Straight Line Method

Q.1 A & B Co. purchased a machine on July 01, 2015 at the list price of Rs. 100,000 with
terms of 2/10, n/30. The company paid the following additional expenses in acquisition of the
machine on the same date:
I. Sales Tax 15%
II. Freight Charges 12,500
III. Transportation from the Railway station to the factory 1,500
IV. Installation Charges 4,000

The management of the company decided that the estimated life of the machine was 10 years
and the residual value was Rs. 5,000. The company uses the Straight-line method for charging
depreciation.

The company’s accounting year-end is December 31 of each year.

Required:
i. Compute the cost of machine, and pass general journal entries to record the
acquisition of machine.
ii. Compute the annual depreciation expense of the machine.
iii. Compute the depreciation expense and accumulated depreciation for December 31,
2015, 2016 and 2017.
iv. Pass journal entries to record the depreciation expenses for the year ended
December 31, 2015, 2016 and 2017.
v. Prepare the partial balance sheet as on December 31, 2015, 2016 and 2018.
Q.2 L & J Co. purchased a machine on July 01, 2012 at the list price of Rs. 180,000 with terms
of 2/10, n/30. The company paid the following additional expenses in acquisition of the
machine on the same date:
a. Sales Tax 15%
b. Freight Charges 22,500
c. Transportation from the Railway station to the factory 2,700
d. Installation Charges 7,200

The management of the company decided that the estimated life of the machine was 10 years
and the residual value was Rs. 9,000. The company uses the Straight-line method for charging
depreciation.

The company’s accounting year-end is December 31 of each year.

Required:
i. Compute the cost of machine, and pass general journal entries to record the acquisition of
machine.
ii. Compute the annual depreciation expense of the machine.
iii. Compute the depreciation expense and accumulated depreciation for December 31, 2012,
2013 and 2014.
iv. Pass journal entries to record the depreciation expenses for the year ended December 31,
2012, 2013 and 2014.
v. Prepare the partial balance sheet as on December 31, 2012, 2013 and 2014.
  Basic Concept – Units of Production Method
Q.3 A Company purchases a machine on March 01, 2010 with a cost of Rs. 210,000 and
estimated residual value of Rs. 10,000. It is expected that the estimated life of machine is
40,000 hours.
During the year 2010 and 2011 the machine was in operation for 2,000 hours and 3,500
respectively.

The company’s accounting year-end is December 31 of each year.

Required:
i. Compute the depreciation expense per hour.
ii. Compute the depreciation expenses for the year ended December 31, 2010 and
2011 and pass adjusting entries.
iii. Prepare partial balance sheet as on December 31, 2010 and 2011.

Q.4 A Company purchases a machine on February 01, 20X1 with a cost of Rs. 378,000 and
estimated residual value of Rs. 18,000. It is expected that the estimated life of machine is
72,000 hours.
During the year 20X1 and 20X2 the machine was in operation for 3,600 hours and 6,300
respectively.

The company’s accounting year-end is December 31 of each year.

Required:
i. Compute the depreciation expense per hour.
ii. Compute the depreciation expenses for the year ended December 31, 20X1 and
20X2 and pass adjusting entries.
iii. Prepare partial balance sheet as on December 31, 20X1 and 20X2.
Q.5 Ali Ahmed & Co. purchases a machine costing Rs. 320,000. It is estimate that the
machinery will have a scrap value of Rs. 20,000 at the end of its estimated service life of 10
years. It is also estimated that the machinery will have a service life of producing approximately
50,000 units.

Required:
1. Compute the depreciation expense per unit.
2. Compute the depreciation expenses for first two years, assuming that production of first
year is 4,500 units and second year 5,800 units.
3. Prepare partial balance sheet of first two years.

Q.6 Adil & Co. purchases a machine costing Rs. 576,000. It is estimate that the machinery
will have a scrap value of Rs. 36,000 at the end of its estimated service life of 10 years. It is also
estimated that the machinery will have a service life of producing approximately 90,000 units.

Required:
1. Compute the depreciation expense per unit.
2. Compute the depreciation expenses for first two years, assuming that production of first
year is 8,100 units and second year 10,440 units.
3. Prepare partial balance sheet of first two years.
  Basic Concept – Declining Balance Method
Q.7 Cool & Cool Ltd. Purchases a machine on 1st January with costing Rs. 100,000 and its
estimated residual value is Rs. 4,000 after its service life. The company had been using Declining
Balance Method of Charging depreciation 40%. The accounting year-end is December of each
year.

Required:
i. Compute the depreciation expense for first 5 year.
ii. Prepare partial balance sheet as on December 31, 4th and 5th year.

Q.8 Cool & Cool Ltd. Purchases a machine on 1st January with costing Rs. 180,000 and its
estimated residual value is Rs. 7,200 after its service life. The company had been using Declining
Balance Method of Charging depreciation 40%. The accounting year-end is December of each
year.

Required:
i. Compute the depreciation expense for first 5 year.
ii. Prepare partial balance sheet as on December 31, 4th and 5th year.
  Disposal of Fixed Assets – Fully Depreciated
Q.9 A Plant machine was purchased on April 01, 2010. The cost of machine was Rs. 150,000
and the salvage value was nil. The life of machine was estimated is 3 years. The machine was
not serviceable after its useful life.
The company uses straight line method for charging depreciation expense, and the closing day
of the financial accounting year is March 31, of each year.

Required:
i. Calculate the depreciation expense of the entire life of the machine.
ii. Pass journal entry to record the purchase of machine and adjusting entries for each
of the accounting year-end.
iii. Pass adjusting entry to write off the fully depreciated machine.

Q.10 A Plant machine was purchased on January 01, 20X1. The cost of equipment was Rs.
270,000 and the salvage value was nil. The life of the equipment was estimated is 3 years. The
machine was not serviceable after its useful life.
The company uses straight line method for charging depreciation expense, and the closing day
of the financial accounting year is March 31, of each year.

Required:
i. Calculate the depreciation expense of the entire life of the machine.
ii. Pass journal entry to record the purchase of machine and adjusting entries for each
of the accounting year-end.
iii. Pass adjusting entry to write off the fully depreciated machine.
  Disposal of Fixed Assets -Not Fully Depreciated
Q.11 An equipment costing Rs. 10,000 was purchased on October 01, 1996. The estimated
useful life was 4 years and the salvage value was 2,000. On April 30, 1998 the company decided
to sale this equipment, because it was no longer required. The selling price of the equipment
was 1,500 0n that date.
The company uses straight line method for charging depreciation expense, and the closing day
of the financial accounting year is December 31, of each year.

Required:
i. Calculate the depreciation expense up-to April 30, 1998 and give adjusting entries to
record the depreciation expenses.
ii. Pass adjusting entry on April 30, 1998 for disposal of equipment.

Q.12 An equipment costing Rs. 18,000 was purchased on September 01, 2001. The estimated
useful life was 4 years and the salvage value was 3,600. On March 31, 2003 the company
decided to sale this equipment, because it was no longer required. The selling price of the
equipment was 2,700 0n that date.
The company uses straight line method for charging depreciation expense, and the closing day
of the financial accounting year is December 31, of each year.

Required:
i. Calculate the depreciation expense up-to March 31, 2003 and give adjusting entries
to record the depreciation expenses.
ii. Pass adjusting entry on March 31, 2003 for disposal of equipment.
Q.13 An equipment costing Rs. 70,000 was purchased on March 01, 1999. The estimated
useful life was 8 years and the salvage value was 6,000. On April 30, 2003 the company decided
to sale this equipment, because it was no longer required. Cash of Rs. 50,000 was received on
the sale of this equipment.
The company uses straight line method for charging depreciation expense, and the closing day
of the financial accounting year is December 31, of each year.

Required:
i. Calculate the depreciation expense up-to April 30, 2003.
ii. Pass adjusting entry on April 30, 2003 for disposal of equipment.
  Exchange of Fixed Assets
Q.14 On January 01,20X4 an old machine was exchanged for a similar machine. The new
machine was priced at Rs. 60,000 and seller accepted the used machine for Rs. 21,000 and the
balance was paid in cash.
The cost of old machine was Rs. 70,000 and the allowance for depreciation up-to the date of
exchange was Rs. 48,000

Required:
a. Calculate the gain or loss on exchange.
b. Calculate the cash balance to be paid on exchange.
c. Give entry to record the exchange of machine.

Q.15 On January 01, 2019 an old machine was exchanged for a similar machine. The new
machine was priced at Rs. 108,000 and seller accepted the used machine for Rs. 37,800 and the
balance was paid in cash.
The cost of old machine was Rs. 126,000 and the allowance for depreciation up-to the date of
exchange was Rs. 86,400

Required:
a. Calculate the gain or loss on exchange.
b. Calculate the cash balance to be paid on exchange.
c. Give entry to record the exchange of machine.
  Disposal of Fixed Assets
Q.16 The following selected transactions have been obtained from the accounting records of
Shaheen Traders:
I. On January 01, 2015 an office equipment that costed Rs. 65,000 and no market value,
has been discarded because it is no longer required. Accumulated depreciation is
65,000.
II. On March 01,2015 an office furniture that costed Rs. 45,000 and has a book value of Rs.
3,000 is sold for cash Rs. 4,500
III. On May 01,2015 a factory truck whose original cost is Rs. 250,000 and allowance for
depreciation on that date is Rs. 205,000, has been exchanged with a new truck whose
price is Rs. 320,000 and the trade in allowance for old truck is agreed at Rs. 55,000
Required:
a. Give journal entries to record the discarding of office equipment on January 01,2015
b. Give journal entries to record the sale of office furniture on March 01, 2015.
c. Give journal entries to record the exchange of factory truck on May 01, 2015.
(Note: Full Computation is required to show for each case)

Q.17 The following selected transactions have been obtained from the accounting records of
Shah Traders:
IV. On January 01, 2018 an office equipment that costed Rs. 117,000 and no market value,
has been discarded because it is no longer required. Accumulated depreciation is
117,000.
V. On March 01,2018 an office furniture that costed Rs. 81,000 and has a book value of Rs.
5,400 is sold for cash Rs. 8,100
VI. On May 01,2018 a factory truck whose original cost is Rs. 450,000 and allowance for
depreciation on that date is Rs. 369,000, has been exchanged with a new truck whose
price is Rs. 320,000 and the trade in allowance for old truck is agreed at Rs. 99,000
Required:
d. Give journal entries to record the discarding of office equipment on January 01,2018
e. Give journal entries to record the sale of office furniture on March 01, 2018.
f. Give journal entries to record the exchange of factory truck on May 01, 2018.
(Note: Full Computation is required to show for each case)
  Recognition of Gain or loss
Q.18 GMC & Co. acquired a computer at a cost of Rs. 160,000 as on January 01, 2010. The
computer was depreciated under Straight Line Method with the assumption of a 5 years life
and no salvage value. After 4 years on January 01, 2014, the computer was traded in with a new
model computer priced at Rs. 200,000. The trade-in-allowance was of Rs. 48,000

Required:
Give Journal entries to record the exchange as below:
i. Recognizing loss or gain and
ii. Without recognizing loss or gain

Q.19 Awami Traders acquired a computer at a cost of Rs. 288,000 as on January 01, 2011. The
machine was depreciated under Straight Line Method with the assumption of a 5 years life and
no salvage value. After 4 years on January 01, 2015, the machine was traded in with a new
model machine priced at Rs. 360,000. The trade-in-allowance was of Rs. 86,400

Required:
Give Journal entries to record the exchange as below:
i. Recognizing loss or gain and
ii. Without recognizing loss or gain
  Change Of Residual Value
Q.20 An equipment was purchased on April 08, 1998 costing Rs. 60,600. The estimated useful
life of the equipment was 10 years and the residual value was Rs. 2,600. Company uses the
Straight Line Method for charging depreciation.
On December 31, 2001 before charging of depreciation, it was decided that the residual value
of the equipment should be Rs. 1,000 instead of Rs. 2,600 because residual value was
overestimated at the time of purchase.
On October 31. 2003 the machine was sold for Rs. 24,500. The company follows calendar year
for closing its books of accounts.

Required:
i. Prepare dated general journal entries for all the transactions between 1998 & 2003.