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AS-10

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X ltd traded in a old machine having a carrying amt of Rs. 15000 and paid another Rs. 5000 to buy a new machine whose price is Rs. 26000

How the company should record this is the books of accounts?

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sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 07 March 2011

If the new machine enhances the capacity beyond performance of old machine it is capitalised along with carrying amaount if it falls in the same class

If the machine has seperate identity it will be classified as a seperate ITEM AND DEPRECIATION WILL BE PROVIDED ACCORDINGLY

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sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 07 March 2011

But please note items costing less than Rs 5000 as per schedule VI can be written off without capitalising it

(Guest)

Dear Sivaram, thank u for your reply.

Can you pls tell me the "journal entry" for this transaction

and the way in which it will appear in the financial statement

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 07 March 2011

Gross Block

Opening Balance 26000

Additions 5000

Gross Block 31000

Less Depreciation 11000

Net Block 20000

When Rs. 5000 is capitalised and shown along with same class of assets

Note Depreciation is not provided on Additions as date of additions not known

If addition is a seperate class of asset show Rs. 5000 as addition in gross block and provide depreciation acordingly

If written off Rs. 5000 will not be shown as addition and Gross Block will be Rs. 26000 and Net Block will be Rs. 15000 and depreciation will be Rs. 11000

(Guest)

Hi sivaram. I'm sorry if i sounds very stupid. I really cant able to understand why the opening balance is Rs 26000 and the additions is rs. 5000.

Because in my case a asset worth Rs. 15000 is sold and a new asset worth Rs. 26000 is purchased by paying Rs. 5000. There fore the total amt spent by X ltd is Rs 20000 (15k+5k) for puchasing an asset worth of Rs. 26000

Can you also tell me the logic behind Gross block Rs. 31000 (26k+5k)

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 08 March 2011

sorry dinesh u are right machine account appears as follows

Cost Price Rs. 26000

Less Deletions 15000(Presuming it is at cost)

Less Accumulated Depreciation ********

Net Block 9000

Depreciation to be provided at the rates for additions of Rs. 26000 and Depreciation on Sale of Asset for Rs. 15000 is to be reversed till date of sale and profit and loss is to be ascertained and taken to profit and loss .

Here sale value of the asset is not given and I presumed that Rs. 15000 is the cost of Asset Sold

Thanks Dinesh for correcting me

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