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CMA Foundation · Fundamentals of Financial and Cost Accounting · Journal and Ledger

Anand Traders' Machinery account had a debit balance of Rs 2,40,000 on 1 April. On 1 October machinery costing Rs 60,000 was bought and Rs 5,000 was paid as installation charges, both by cheque. On 31 January machinery with book value Rs 40,000 was sold for Rs 35,000 in cash. Ignoring depreciation, what is the balance of the Machinery account on 31 March and what is the loss on sale transferred to the P&L account?

The Machinery account closes at Rs 2,65,000 debit, with a loss on sale of Rs 5,000. Installation charges are capitalised, so debits total Rs 3,05,000. Crediting the Rs 40,000 book value of the sold machine leaves Rs 2,65,000. Sale at Rs 35,000 gives a Rs 5,000 loss.

  1. ARs 2,65,000 debit; loss Rs 5,000Correct
  2. BRs 2,60,000 debit; loss Rs 5,000
  3. CRs 2,65,000 debit; loss Rs 40,000
  4. DRs 3,00,000 debit; loss Rs 5,000

Explanation

Debit side: 2,40,000 + 60,000 + 5,000 installation (capitalised) = 3,05,000. Credit side: book value of machinery sold 40,000 is credited. Closing balance = 3,05,000 - 40,000 = 2,65,000 debit. Loss = 40,000 - 35,000 = 5,000. Excluding installation gives Rs 2,60,000, which is wrong.

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