Journal entries examples of depreciation will be advantageous to understand accounting aspect of depreciation. Depreciation is the loss due to decrease in the value of any fixed asset. Simple journal entry will be done by writing depreciation account debit and particular fixed asset account credit.
There are many situation when you may face difficulty relating to passing the journal entries of depreciation. Today, we are trying to solve this problem by writing some journal entries examples of depreciation.
Following are the journal entries of transactions and financial events relating to depreciation. All these journal entries have been passed on the basis of double entry system.
1. A company bought machinery for Rs. 10000 and depreciation rate is 10%.
a) Depreciation on fixed assets is the loss of business, and every loss will be debited.
b) There is a decrease in asset and we will apply what goes from business on it. So, Machinery (Fixed asset) account will be credited.
Depreciation Account Debit 1000
Machinery Account Credit 1000
2. Financial year is 1st Jan. to 31st Dec. Above same machinery has been sold at Rs. 5000 on 31st march 2011. This machinery was purchased on 1 Jan. 2010. Depreciation rate is 10% and it is charged with diminishing balance method.
Above entry will be same in this case from 1 Jan. 2010 to 31st DEC. 2010. After this, we are telling you the procedure.
a) Depreciation is loss and with this up to sale date. It will be debit
b) Value of machinery will decrease, it will be credit.
Depreciation Account Debit 225
Machinery Account Credit 225
( 10000 original cost of machine - 1000 previous year depreciation ) X 10% X 3/12 = 225 )
3. Rs. 10000 depreciation transfer to Profit and Loss account.
a) Profit and loss account complete the double entry record. All expenses and loss will be debit in its account. With this, all expenses and losses account will be closed. So, profit and loss account will be debit in this journal entry.
b) Depreciation account will be credit because with this depreciation account will be closed. Please do not create doubt about showing depreciation loss in credit side. This entry is the part of closing of accounts at the end of year.
Profit and Loss Account Debit 10000
Depreciation Account Credit 10000
4. A company bought machinery for Rs. 10000 and depreciation rate is 10%. Provision for depreciation account is maintained.
a) Depreciation on machinery is the loss of business, and every loss will be debited.
b) Provision for depreciation account will be credit because we are maintaining it. It means, we will not decrease the original cost of machinery at any time except time of sale. So, provision for depreciation will be just like liability of business. Like other liabilities, this liability account will also credit.
Depreciation Account Debit 1000
Provision for Depreciation Account Credit 1000
5. A company bought machinery for Rs. 10000 and depreciation rate is 10%. All depreciation will be transferred to accumulated depreciation account.
a) Depreciation on machinery is the loss of business, and every loss will be debited.
b) Accumulated depreciation account is just like provision for depreciation account and it will be credit because we are collected all depreciation in the form of accumulated depreciation. It means, we want to maintain our historical cost of machinery at any time except time of sale. So, accumulated depreciation will be contra account. So, it will be credited.
Depreciation Account Debit 1000
Accumulated Depreciation Account Credit 1000
6. You sell the Car at Rs. 5,00,000. Its accumulated depreciation is Rs. 50,000. Its original cost is Rs. 600000.
a) cash account will be debited because cash comes in the business. Everything which comes in the business will be debit under second rule of double entry system.
b) Accumulated depreciation account will be debit because with this, liability will decrease. Accumulated depreciation was our liability.
c) Profit and loss account will be debit because this is the loss on sale car.
d) Original Cost of car will be credit because car goes from business.
Cash Account Debit 500000
Accumulated Depreciation Account Debit 50000
Profit and Loss Account Debit 50000
Car Account Credit 600000
7. 1st April 1997, Vishal acquires a 5 year's lease for Rs. 40000. It is decided for renewal of lease immediately after 5 years by setting up a depreciation fund. It is expected that investment will fetch interest at 5% p.a. sinking fund table shows that RS. 0.180975 invested each year will produce Rs. 1 at end of 5 years at 5% p.a.
Annual depreciation = 40000 X 0.180975 = Rs. 7239
a) Depreciation on lease is the loss of business, and every loss will be debited.
b) All depreciation will transfer to depreciation fund account. You know that depreciation cuts from profit. It decrease the profit but there is no outflow. Same amount, we will transfer in depreciation fund.
Depreciation Account Debit 7239
Depreciation Fund Account Credit 7239
(this entry will be passed five years)
When We also invest same depreciation fund money in depreciation fund investment.
a) We got investment, so depreciation fund investment account will be debit
b) Money goes from business. It means we will credit to cash account
Depreciation Fund Investment Account Debit 7239
Cash Account Credit 7239
(this entry will be passed five years)
When we receive interest on depreciation fund investment
a) We receive money of interest. So, bank or cash account will be debit.
b) Interest on depreciation fund investment account is our income. So, it will be credit
Bank Account Debit 7239 X 5% = 362
Interest on Depreciation Fund Investment Account Credit 362
(this entry will be passed five years)
8. At the expiry of the lease i.e. on 31st march, 2002, the depreciation fund investment are sold Rs. 31205 and immediately renewed for a further period of 5 years by a payment of Rs. 44000. Pass journal entries.
When we get cash on sale of depreciation fund investment
a) Cash will come on the sale, so cash account will be debit
b) Depreciation fund investment will go from our business, so depreciation fund investment account will credit
Cash Account Debit 31205
Depreciation Fund Investment Credit 31205
When Profit on sale of investment will be transfer to depreciation fund account
Depreciation Fund Investment Account Debit 4
Depreciation Fund Account Credit or Profit and loss Account 4
( Entry just on the basis of balance adjustment)
9. You have one piece of property for which you originally paid Rs. 10,000. Let's also assume after six years the property is fully depreciated and you sell it for Rs. 1,000.
We will not pass the depreciation entry because this property is fully depreciated. It means total depreciation of its working life has been transferred to profit and loss accounts. We just show as profit because total cost will already become nil.
Cash Account Debit Rs. 1000
Profit and Loss Account Rs. 1000
10. Provide depreciation of Rs. 20000 on Factory Machine. Pass the adjusting entry in final accounts
a) Manufacturing account will be debit because all the expenses relating to production will be debit in this account.
b) Depreciation account is already debited in day book. Now, this account is closed by transferring to the debit side of manufacturing account because this is the part of production expenses.
Manufacturing Account Debit 20000
Depreciation on Factory Machine 20000
There are many situation when you may face difficulty relating to passing the journal entries of depreciation. Today, we are trying to solve this problem by writing some journal entries examples of depreciation.
Following are the journal entries of transactions and financial events relating to depreciation. All these journal entries have been passed on the basis of double entry system.
1. A company bought machinery for Rs. 10000 and depreciation rate is 10%.
a) Depreciation on fixed assets is the loss of business, and every loss will be debited.
b) There is a decrease in asset and we will apply what goes from business on it. So, Machinery (Fixed asset) account will be credited.
Depreciation Account Debit 1000
Machinery Account Credit 1000
2. Financial year is 1st Jan. to 31st Dec. Above same machinery has been sold at Rs. 5000 on 31st march 2011. This machinery was purchased on 1 Jan. 2010. Depreciation rate is 10% and it is charged with diminishing balance method.
Above entry will be same in this case from 1 Jan. 2010 to 31st DEC. 2010. After this, we are telling you the procedure.
a) Depreciation is loss and with this up to sale date. It will be debit
b) Value of machinery will decrease, it will be credit.
Depreciation Account Debit 225
Machinery Account Credit 225
( 10000 original cost of machine - 1000 previous year depreciation ) X 10% X 3/12 = 225 )
3. Rs. 10000 depreciation transfer to Profit and Loss account.
a) Profit and loss account complete the double entry record. All expenses and loss will be debit in its account. With this, all expenses and losses account will be closed. So, profit and loss account will be debit in this journal entry.
b) Depreciation account will be credit because with this depreciation account will be closed. Please do not create doubt about showing depreciation loss in credit side. This entry is the part of closing of accounts at the end of year.
Profit and Loss Account Debit 10000
Depreciation Account Credit 10000
4. A company bought machinery for Rs. 10000 and depreciation rate is 10%. Provision for depreciation account is maintained.
a) Depreciation on machinery is the loss of business, and every loss will be debited.
b) Provision for depreciation account will be credit because we are maintaining it. It means, we will not decrease the original cost of machinery at any time except time of sale. So, provision for depreciation will be just like liability of business. Like other liabilities, this liability account will also credit.
Depreciation Account Debit 1000
Provision for Depreciation Account Credit 1000
5. A company bought machinery for Rs. 10000 and depreciation rate is 10%. All depreciation will be transferred to accumulated depreciation account.
a) Depreciation on machinery is the loss of business, and every loss will be debited.
b) Accumulated depreciation account is just like provision for depreciation account and it will be credit because we are collected all depreciation in the form of accumulated depreciation. It means, we want to maintain our historical cost of machinery at any time except time of sale. So, accumulated depreciation will be contra account. So, it will be credited.
Depreciation Account Debit 1000
Accumulated Depreciation Account Credit 1000
6. You sell the Car at Rs. 5,00,000. Its accumulated depreciation is Rs. 50,000. Its original cost is Rs. 600000.
a) cash account will be debited because cash comes in the business. Everything which comes in the business will be debit under second rule of double entry system.
b) Accumulated depreciation account will be debit because with this, liability will decrease. Accumulated depreciation was our liability.
c) Profit and loss account will be debit because this is the loss on sale car.
d) Original Cost of car will be credit because car goes from business.
Cash Account Debit 500000
Accumulated Depreciation Account Debit 50000
Profit and Loss Account Debit 50000
Car Account Credit 600000
7. 1st April 1997, Vishal acquires a 5 year's lease for Rs. 40000. It is decided for renewal of lease immediately after 5 years by setting up a depreciation fund. It is expected that investment will fetch interest at 5% p.a. sinking fund table shows that RS. 0.180975 invested each year will produce Rs. 1 at end of 5 years at 5% p.a.
Annual depreciation = 40000 X 0.180975 = Rs. 7239
a) Depreciation on lease is the loss of business, and every loss will be debited.
b) All depreciation will transfer to depreciation fund account. You know that depreciation cuts from profit. It decrease the profit but there is no outflow. Same amount, we will transfer in depreciation fund.
Depreciation Account Debit 7239
Depreciation Fund Account Credit 7239
(this entry will be passed five years)
When We also invest same depreciation fund money in depreciation fund investment.
a) We got investment, so depreciation fund investment account will be debit
b) Money goes from business. It means we will credit to cash account
Depreciation Fund Investment Account Debit 7239
Cash Account Credit 7239
(this entry will be passed five years)
When we receive interest on depreciation fund investment
a) We receive money of interest. So, bank or cash account will be debit.
b) Interest on depreciation fund investment account is our income. So, it will be credit
Bank Account Debit 7239 X 5% = 362
Interest on Depreciation Fund Investment Account Credit 362
(this entry will be passed five years)
8. At the expiry of the lease i.e. on 31st march, 2002, the depreciation fund investment are sold Rs. 31205 and immediately renewed for a further period of 5 years by a payment of Rs. 44000. Pass journal entries.
When we get cash on sale of depreciation fund investment
a) Cash will come on the sale, so cash account will be debit
b) Depreciation fund investment will go from our business, so depreciation fund investment account will credit
Cash Account Debit 31205
Depreciation Fund Investment Credit 31205
When Profit on sale of investment will be transfer to depreciation fund account
Depreciation Fund Investment Account Debit 4
Depreciation Fund Account Credit or Profit and loss Account 4
( Entry just on the basis of balance adjustment)
9. You have one piece of property for which you originally paid Rs. 10,000. Let's also assume after six years the property is fully depreciated and you sell it for Rs. 1,000.
We will not pass the depreciation entry because this property is fully depreciated. It means total depreciation of its working life has been transferred to profit and loss accounts. We just show as profit because total cost will already become nil.
Cash Account Debit Rs. 1000
Profit and Loss Account Rs. 1000
10. Provide depreciation of Rs. 20000 on Factory Machine. Pass the adjusting entry in final accounts
a) Manufacturing account will be debit because all the expenses relating to production will be debit in this account.
b) Depreciation account is already debited in day book. Now, this account is closed by transferring to the debit side of manufacturing account because this is the part of production expenses.
Manufacturing Account Debit 20000
Depreciation on Factory Machine 20000
See also
- Journal Entries Examples
- Journal Entries Examples Part 2
- Most Difficult Journal Entries Examples
- List of Journal Entries
- Journal Entries Tips
- Journal Entries Problems and Solutions
- Journal Entries Updates
- Debit and Credit Tips
- Ledger Posting Examples
- Accounting Examples
- Insurance Policy Method of Depreciation
- Revaluation Method of Depreciation
- Machine Hour Rate Method of Depreciation
- Depletion Method of Depreciation
Thanku
ReplyDeleteThanx it was helpful. Chandu
ReplyDeleteThank u sir....I am graduated in science..This was really helpful..
ReplyDeleteDear Sir
ReplyDeleteCan you tell me how you calculate Depriciation in 2 example with diminishing Method
hi sir, when we do depriciation, where this depreciation amount will go in final accounts?
ReplyDeletecan you please clarify me
Depreciation reduced from asset in balance sheet and such depreciation amount should be shown in debit side in profit and loss account.
Deletehow is rs 4 come in example no 8 ,while transfering to depreciation fund a/c ?
ReplyDeletethanks, its helpful
ReplyDelete