If a Machine is purchased from the development fund then what accounting treatment will be made for depreciation & at the time of purchase????
thanks in advance
1 Replies
Gurkiran Singh
(Subject Matter Expert & CWA (Inter))
(134 Points)
Replied 06 July 2011
At the time of Purchase of Asset
Development Fund A/c Dr.
To General Reserve A/c
(The balance of Dev fund was utilized to purchase the asset and hence it’s trans. to General reserve)
Fixed Assets A/c Dr.
To Bank A/c
(Being the asset is purchased)
Explanation: The development fund is such a not a free reserve (cannot be utilized by owners etc) so it’s been transferred to General Reserve after it was utilized to purchase an asset.
And the General reserve, hence, will exist in the form of the Asset since:
ASSET = LIABILITIES + RESERVES+ OWNERS CAPITAL
For Depreciation
Depreciation A/c Dr.
To Asset A/c
(Being the depreciation is charged to the asset)
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