DEPARTMENT OF TECHNICAL EDUCATION
ANDHRA PRADESH
Name : [Link] Reddy
Designation : HCCP
Branch : DCCP
Institute : 026,[Link],Adilabad
Year/Semester : III Semester
Subject : Accountancy-II
Subject Code : CCP-302
Topic : Depreciation
Duration : 50 Min.
Sub Topic : Sinking Fund Method
Teaching Aids : Animation
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Objectives
On completion of this period you would be
able to know
The Calculation of Depreciation under Sinking fund
Method
CCP302.35 2
Recap:
In the last class we learned about the
procedure for
Calculation of Depreciation under Sinking
fund Method
Advantages
Disadvantages
Journal entries
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• On 1st January 2003, a Lease was purchased for
Rs.40,000. It is to be replaced at the end of 4 years. It
is expected that investments will yield a net interest of
4% p.a. A Depreciation Fund is established to collect
necessary amount. Sinking Fund tables show that to
get Re.1 at the end of 4 years @ 4% p.a. an annual
investment of Re 0.23549 is necessary. Investments
are made to the nearest rupee.
On 31st December 2006 the firm has a balance of
Rs.2,000(after receiving the interest on investment).
The Depreciation Fund Investment realized
Rs.29,[Link] new lease cost Rs.45,000
Show the necessary Ledgers Accounts.
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Depreciation Fund A/C
Dr Cr
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CCP-302.25 5
Depreciation Fund Investment A/c
Dr Cr
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6
Dr Depreciation Account Cr
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Lease Account
Dr Cr
Dr Cr
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Bank Account
Dr Cr
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Lease (New) Account
Dr. Cr.
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• A company purchased a lease on 1st January 2005 for
Rs. 25,000. It is decided to provide for the replacement
of the lease at the end of 3 years by setting of a
Depreciation Fund. It is expected that investments will
fetch interest at 5%. Sinking Fund Table shows that to
provide the require amount at 5% at the end of 3 years
and investment of Rs. 7,932.22 is required every year.
Investments are made to the nearest rupee.
On 31st December 2007 the investments are sold for Rs.
15,250.
Prepare the Lease a/c , Depreciation Fund a/c and
Depreciation Fund Investment a/c.
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Lease Account
Dr. Cr
Date Particulars Rs. Date Particulars Rs.
2005 2005
Jan 1 To Bank a/c 25,000 Dec. 31 By Balance c/d 25000
25000 25000
2006 2006
Jan 1 To Bal b/d 25000 Dec. 31 By Balance c/d 25000
25000 25000
2007 2007
Jan 1 To Bal b/d 25000 Dec. 31 By Balance c/d 25000
25000 25000
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Depreciation Fund Account
Dr. Cr
Date Particulars Rs. Date Particulars Rs.
2005 2005
Dec 31 To Bal c/d 7,932.22 Dec. 31 By Depreciation c/d 7,932.22
7,932.22 7,932.22
2006 2005
Dec 31 To Bal c/d 16,261.04 Jan 1 By Balance b/d 7,932.22
31-Dec By Bank a/c 3,96.60
31-Dec By Depreciation 7,932.22
16,261.04 16,261.04
To
2007 Depreciation
Dec 31 Fund Invest- 2005
ment a/c 1,011.00 Jan 1 By Balance b/d 16261.04
To Lease a/c 25,000.00 31-Dec By Bank a/c 813.05
31-Dec By Depreciation 7,932.22
31-Dec By P & L a/c 1,004.69
26,011.00 26,011.00
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Depreciation Fund Investment Account
Dr. Cr
Date Particulars Rs. Date Particulars Rs.
2005 2005
Dec 31 To Bank a/c 7,932 Dec. 31 By Balance c/d 7932
7,932 7,932
2006 2006
Jan 1 To Bal b/d 7932 Dec. 31 By Balance c/d 16261
" Dec 31 To Bank 8329
16261 16261
2007 2007
Jan 1 To Bal b/d 16261 Dec. 31 By Bank 15250
By Depreciation
Fund a/c
" (Loss transferred) 1,011
16261 16,261
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Summary
At the end of this session we have learned
The calculation of depreciation under sinking fund
method
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