what will be entry in accounting equation if there is an entry depreciation on machinery RS 500 with example

asked Mar 14, 2014 in Accounting Equation by m aslam (2 points) 3,147 views

1 Answer

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If depreciation is charged on machinery, it involves 2 aspects.  First aspect is depreciation is an expense (depreciation is reduction in the value of any fixed asset due to use or passage of time, just like the value of car reduces after use).  So to record depreciation we must reduce 500 from capital.  Second aspect is that value of machinery is to be reduced, hence 500 will be reduced from machinery also.
answered Mar 14, 2014 by jbsclasses (3,971 points)
can you expalin what is depreciation on machinery ?
Depreciation explained:  For example if you buy a car for Rs.500000 and it's useful life is 10 years. After 10 years it is estimated that it can be sold in second hand market for Rs.100000.  You use this car for 10 years, how much it cost you in 10 year?  Obvious answer is 500000 - 100000 = 400000.  How much it cost you per year? Obvious answer is 400000/10 = 40000.  This amount of Rs.40000 by which every year the value of car reduces is called depreciation.  It applies to all fixed assets like machinery, furniture, building (not land) and vehicles etc.  We can call depreciation as reduction in the value of fixed assets due to usage or passage of time (for example if you don't use a machinery, even then it's value reduces, because products manufactured by that are no more required in market.  I hope it is amply clear.
Well explained Sir :) :)