Depreciation, Sinking Funds, and Leasehold Redemption Policies

This blog post discusses three accounting problems related to depreciation, sinking funds, and leasehold redemption policies.

The first problem involves a company that uses the diminishing balance method to depreciate its machinery. The second problem involves a company that sets up a depreciation fund to replace a lease at the end of four years. The third problem involves a company that acquires a long-term lease of property and takes out a leasehold redemption policy.

The solutions to these problems are as follows:

• The amount of depreciation that should be recorded for the machinery account in 1998 is Rs. 26,450.
• The amount that should be credited to the profit and loss account at the end of 1988 is Rs. 17,560.
• The balance in the redemption fund account and the policy account at the end of 1998 is Rs. 14,444.
• The ledger entries necessary to close the accounts concerned when the leasehold redemption policy matures are as follows:
• Dr. Redemption Fund Account
• Cr. Profit and Loss Account
• Rs. 100
• Dr. Policy Account
• Cr. Cash Account
• Rs. 60,100

For more information on these topics, please see the following resources:

• https://www.accountingcoach.com/blog/depreciation
• https://www.investopedia.com/terms/s/sinkingfund.asp
• https://www.thebalancesmb.com/leasehold-redemption-policy-2948493