Accounting of development fund

At the time of Purchase of Asset

Development Fund A/c Dr.

   To General Reserve A/c

(The balance of Dev fund was utilized to purchase the asset and hence it’s trans. to General reserve)

Fixed Assets A/c Dr.

To Bank A/c

(Being the asset is purchased)

Explanation: The development fund is such a not a free reserve (cannot be utilized by owners etc) so it’s been transferred to General Reserve after it was utilized to purchase an asset.

And the General reserve, hence, will exist in the form of the Asset since:

ASSET = LIABILITIES + RESERVES+ OWNERS CAPITAL

For Depreciation

Depreciation A/c Dr.

  To Asset A/c

(Being the depreciation is charged to the asset)