28 July 2024
### Journal Entries for the Horse Transaction
Let’s break down the entries required for the purchase, the recovery from the sale of the carcass, and the impact on depreciation.
**1. ** Purchase of Horse on 1-May-2013**
**Journal Entry:** ``` Date Account Dr. (Rs.) Cr. (Rs.) 1-May-2013 Horse (Asset) 2.50L Bank/Cash 2.50L ```
- **Explanation**: The purchase of the horse is recorded as an asset in the books, and the payment is made through bank or cash.
**2. ** Depreciation on 31-March-2014**
Depreciation needs to be recorded for the horse, assuming the asset is depreciable. The exact method and rate of depreciation depend on the accounting policies followed, but let’s assume straight-line depreciation for this example.
Let’s assume the horse’s useful life is 2 years, and no salvage value is considered for simplicity.
**Calculation of Depreciation:** - **Cost of the Horse**: Rs. 2.50L - **Useful Life**: 2 years - **Depreciation per Year**: Rs. 2.50L / 2 = Rs. 1.25L
**Depreciation for the period from 1-May-2013 to 31-March-2014 (11 months):** - Annual Depreciation: Rs. 1.25L - Depreciation for 11 months: (1.25L / 12) * 11 = Rs. 114,583.33 (approx.)
**Journal Entry on 31-March-2014:** ``` Date Account Dr. (Rs.) Cr. (Rs.) 31-Mar-2014 Depreciation Expense 114,583.33 Accumulated Depreciation 114,583.33 ```
- **Explanation**: Depreciation expense is recorded for the period, and accumulated depreciation is updated.
**3. ** Sale of Carcass on 23-April-2014**
When the horse dies and the carcass is sold, the following entries are required:
**Journal Entry:** ``` Date Account Dr. (Rs.) Cr. (Rs.) 23-Apr-2014 Bank/Cash 5K Loss on Sale of Carcass 5K ```
- **Explanation**: The recovery amount from the sale of the carcass is recorded. Since the horse was an asset, any sale of its carcass would typically be recorded as income or reduction of loss.
**4. ** Write-off of Horse on 23-April-2014**
The horse’s cost and accumulated depreciation must be removed from the books.
**Journal Entry:** ``` Date Account Dr. (Rs.) Cr. (Rs.) 23-Apr-2014 Accumulated Depreciation 114,583.33 Loss on Sale of Horse 130,416.67 Horse (Asset) 250,000 ```
- **Explanation**: - **Accumulated Depreciation**: Rs. 114,583.33 is removed as the horse is no longer an asset. - **Loss on Sale of Horse**: The difference between the cost of the horse and its net book value (Cost – Accumulated Depreciation) is recorded as a loss.
**Note**: - **Depreciation Rate and Useful Life**: Adjust the depreciation calculation according to the actual useful life and depreciation policy. - **Loss on Sale**: The loss is calculated as the net book value minus any recovery from the carcass sale.
In summary: - Record the purchase and initial payment. - Provide depreciation on an annual or periodic basis. - Adjust for the sale of the carcass and write-off the asset and accumulated depreciation once the horse dies.
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