# Financial Accounting

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Financial Accounting (Mgt-101)
VU
Lesson-20
CAPITAL WORK IN PROGRESS
If an asset is not completed at that time when balance sheet is prepared, all costs incurred on that asset up to
the balance sheet date are transferred to an account called Capital Work in Progress Account. This
account is shown separately in the balance sheet below the fixed asset. Capital work in progress account
contains all expenses incurred on the asset until it is converted into working condition. All these expenses
will become part of the cost of that asset. When any expense is incurred or paid, it is included in the Capital
Work in Progress Account through the following entry:
Debit:
Work in Progress Account
Credit:
Cash/Bank/Payable Account
When an asset is completed and it is ready to work, all costs will transfer to the relevant asset account
through the following entry:
Debit:
Relevant asset account
Credit:
Capital work in progress account
PRESENTATION
It is already mentioned that Work in Progress Account is shown separately in the balance sheet below the
fixed asset. i-e.
Name of the Entity
Balance Sheet As At
Particulars
Amount
Amount Rs.
Rs.
Assets
Fixed Assets
xyz
Capital Work in Progress
xyz
Other Long Term Assets
xyz
Current Assets
Total
Xyz
Liabilities
Capital
xyz
Profit
xyz
Xyz
Long Term Liabilities
Xyz
Current Liabilities
Total
Xyz
Consider the solved illustration in the previous lecture:
Depreciation on the basis of use
Date
Purchase
Depreciation
Accumulated
Total
Written
Total
of
(Rs.)
depreciation
Accum.
Down Value
Written
144
Financial Accounting (Mgt-101)
VU
machine
(Rs.)
Dep.
(Rs.)
Down
(Rs.)
Value
(Rs.)
01-09-2000
100,000 Machine # 1
Machine # 1
20,833 Machine # 1
79,167
100,000 x 25%
20,833
79,167
x10/12=20,833
2001-2002
Machine # 1
Machine # 1
61,458 Machine # 1
238,542
79,167x25%
40,625
59,375
= 19,792
31-01-2002
200,000 Machine # 2
Machine # 2
Machine # 2
200,000x25%x5/
20,833
179,167
12=20,833
2002-2003
Machine # 1
Machine # 1
121,094 Machine # 1
178,906
59,375x25%
55,469
44,531
= 14,844
Machine # 2
Machine # 2
Machine # 2
179,167x25%
65,625
134,375
=44,792
2003-2004
Machine # 1
Machine # 1
175,538 Machine # 1
138,281
44,531x25%x
63,819
(36,181)
9/12= 8,350
(sold)
Machine # 2
Machine # 2
Machine # 2
134,375x25%
99,219
100,781
= 33,594
01-07-2003
50,000 Machine # 3
Machine # 3
Machine # 3
50,000x25%
12,500
37,500
= 12,500
PRESENTATION IN THE BALANCE SHEET
Year
Cost of Machinery
Accumulated
Written Down
Depreciation
Value
2000-2001
100,000
20,833
79,167
2001-2002
300,000
61,458
238,542
2002-2003
300,000
121,094
178,906
Written Down Value of the year 2003-2004
Opening Written Down Value:
Rs. 178,906
Rs. 50,000
Less: Depreciation of Machine # 1 in 2003-2004:
(8,350)
Less: Depreciation of other assets:
(46,094)
Less: Written Down Value of machine disposed:
(36,181)
Closing Written Down Value:
Rs. 138,281
145
Financial Accounting (Mgt-101)
VU
Full year depreciation in the year of purchase and no depreciation in the year of sale:
Date
Purchase
Depreciation
Accumulated
Total
Written
Total
of
(Rs.)
depreciation
Accum.
Down Value
Written
machine
(Rs.)
Dep.
(Rs.)
Down
(Rs.)
Value
(Rs.)
01-09-2000
100,000 Machine # 1
Machine # 1
25,000 Machine # 1
75,000
100,000 x 25%
25,000
75,000
=25,000
2001-2002
Machine # 1
Machine # 1
93,750 Machine # 1
206,250
75,000x25%
43,750
56,250
= 18,750
31-01-2002
200,000 Machine # 2
Machine # 2
Machine # 2
200,000x25%
50,000
150,000
=50,000
2002-2003
Machine # 1
Machine # 1
145,313 Machine # 1
154,687
56,250x25%
57,813
42,187
= 14,063
Machine # 2
Machine # 2
Machine # 2
150,000x25%
87,500
112,500
=37,500
2003-2004
Machine # 1
Machine # 1
185,935 Machine # 1
121,875
0
57,813
42,187
Machine sold
(sold)
(sold)
Machine # 2
Machine # 2
Machine # 2
112,500x25%
115,625
84,375
= 28,125
01-07-2003
50,000 Machine # 3
Machine # 3
Machine # 3
50,000x25%
12,500
37,500
= 12,500
PRESENTATION IN THE BALANCE SHEET
Year
Cost of Machinery
Accumulated
Written Down
Depreciation
Value
2000-2001
100,000
25,000
75,000
2001-2002
300,000
93,750
206,250
2002-2003
300,000
145,313
154,687
Written Down Value of the year 2003-2004
Opening Written Down Value:
Rs. 154,687
Rs. 50,000
Less: Depreciation of Machine # 1 in 2003-2004:
0
Less: Depreciation of other assets:
(40,625)
Less: Written Down Value of machine disposed:
(42,187)
Closing Written Down Value:
Rs. 121,875
146
Financial Accounting (Mgt-101)
VU
ILLUSTRATION # 2
Following information of machinery account is available in Year 2004:
·  Machine # 1 is purchased on
August 1, 2000 for Rs. 50,000
·  Machine # 2 is purchased on April 1, 2002 for Rs. 100,000
·  Machine # 3 is purchased on March 1, 2004 for Rs. 150,000
·  Machine # 1 is disposed on May 31, 2004
Depreciation is charged @ 20% reducing balance method. Financial year is closed on June 30 every year.
Show the calculation of depreciation on machinery for four years using the following policies:
·  Depreciation is charged on the basis of use
·  Full depreciation is charged in the year of purchase and no depreciation is charged in the year of
disposal,
SOLUTION
Depreciation on the basis of use
Date
Purchase
Total
Depreciation
Accumulated
Total
Written
of
Down Value
Written
(Rs.)
depreciation
Accum.
machine
(Rs.)
Down
Dep.
(Rs.)
(Rs.)
Value
(Rs.)
01-08-2000
50,000 Machine # 1
Machine # 1
9,167 Machine # 1
40,833
50,000  x  20%
9,167
9,167
x11/12=9,167
2001-2002
Machine # 1
Machine # 1
22,334 Machine # 1
127,666
40,833x20%
17,334
32,666
= 8,167
Machine # 2
01-04-2002
100,000 Machine # 2
5,000
Machine # 2
100,000x20%x3/
95,000
12=5,000
2002-2003
Machine # 1
Machine # 1
47,867 Machine # 1
102,133
32,666x20%
23,867
26,133
= 6,533
Machine # 2
Machine # 2
Machine # 2
95,000x20%
24,000
76,000
=19,000
2003-2004
Machine # 1
Machine # 1
77,858 Machine # 1
200,800
26,133x20%x
28,658
(21,342)
11/12= 4,791
(sold)
Machine # 2
Machine # 2
Machine # 2
76,000x20%
39,200
60,800
= 15,200
01-03-2004
150,000 Machine # 3
Machine # 3
Machine # 3
150,000x20%x
10,000
140,000
4/12= 10,000
147
Financial Accounting (Mgt-101)
VU
PRESENTATION IN THE BALANCE SHEET
Year
Cost of Machinery
Accumulated
Written Down
Depreciation
Value
2000-2001
50,000
9,167
40,833
2001-2002
150,000
22,334
127,666
2002-2003
150,000
47,867
102,133
Written Down Value of the year 2003-2004
Opening Written Down Value:
Rs. 102,133
Rs. 150,000
Less: Depreciation of Machine # 1 in 2003-2004:
(4,791)
Less: Depreciation of other assets:
(25,200)
Less: Written Down Value of machine disposed:
(21,342)
Closing Written Down Value:
Rs. 200,800
Full year depreciation in the year of purchase and no depreciation in the year of sale:
Date
Purchase
Depreciation
Accumulated
Total
Written
Total
of
(Rs.)
depreciation
Accum.
Down Value
Written
machine
(Rs.)
Dep.
(Rs.)
Down
(Rs.)
Value
(Rs.)
01-08-2000
50,000 Machine # 1
Machine # 1
10,000 Machine # 1
40,000
50,000  x  20%
10,000
40,000
=10,000
2001-2002
Machine # 1
Machine # 1
38,000 Machine # 1
112,000
40,000x20%
18,000
32,000
= 8,000
01-04-2002
100,000 Machine # 2
Machine # 2
Machine # 2
100,000x20%
20,000
80,000
=20,000
2002-2003
Machine # 1
Machine # 1
60,400 Machine # 1
89,600
32,000x20%
24,400
25,600
= 6,400
Machine # 2
Machine # 2
Machine # 2
80,000x20%
36,000
64,000
=16,000
2003-2004
Machine # 1
Machine # 1
103,200 Machine # 1
171,200
0
24,400
(25,600)
Machine sold
(sold)
(sold)
Machine # 2
Machine # 2
Machine # 2
64,000x20%
48,800
51,200
= 12,800
01-03-2004
150,000 Machine # 3
Machine # 3
Machine # 3
150,000x20%
30,000
120,000
= 30,000
148
Financial Accounting (Mgt-101)
VU
PRESENTATION IN THE BALANCE SHEET
Year
Cost of Machinery
Accumulated
Written Down
Depreciation
Value
2000-2001
50,000
10,000
40,000
2001-2002
150,000
38,000
112,000
2002-2003
150,000
60,400
89,600
Written Down Value of the year 2003-2004
Opening Written Down Value:
Rs. 89,600
Rs. 150,000
Less: Depreciation of Machine # 1 in 2003-2004:
0
Less: Depreciation of other assets:
(42,800)
Less: Written Down Value of machine disposed:
(25,600)
Closing Written Down Value:
Rs. 171,200
REVALUATION OF FIXED ASSETS
Fixed assets are purchased to be used for longer period. In the subsequent years, the value of asset could be
higher or lower than its present book value due to inflationary condition of the economy. Assets are valued
at Historical Cost in the books of accounts. Historical Cost is the original cost of the asset at which it was
purchased plus additional costs incurred on the asset to bring it in working condition. Sometimes, the
management of the business, if it thinks fit, revalues the asset to present it on current market value. Once the
asset is revalued to its market value, then its value has to be constantly monitored to reflect the changes in
the market value.
If an asset is revalued at higher cost than its original cost, the excess amount will be treated as profit on
revaluation of fixed assets and it is credited to Revaluation Reserve Account.
On the other hand, if an asset is revalued at lower cost than its original cost, the balance amount will be
treated as loss on revaluation of fixed assets and it is shown in the profit & loss account of that year in which
asset was revalued.
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