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CMA Foundation · Fundamentals of Financial and Cost Accounting · Depreciation (Straight Line and Diminishing Balance Methods)

Mehta Traders bought machinery for Rs 5,00,000 and charges depreciation directly to the asset account (no provision account). Which journal entry records the annual depreciation of Rs 50,000?

Depreciation A/c is debited and Machinery A/c is credited by Rs 50,000. Depreciation is a non-cash expense that reduces the book value of the asset, so no cash is involved, and the expense is later transferred to the Profit and Loss Account.

  1. AMachinery A/c Dr 50,000 to Depreciation A/c 50,000
  2. BDepreciation A/c Dr 50,000 to Machinery A/c 50,000Correct
  3. CDepreciation A/c Dr 50,000 to Cash A/c 50,000
  4. DProfit and Loss A/c Dr 50,000 to Provision for Depreciation A/c 50,000

Explanation

Depreciation is a non-cash expense. It is debited to Depreciation A/c and the asset is credited when no provision account is maintained. Crediting cash is wrong because no cash is paid. Option 0 reverses the entry.

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