10 



BULLETIN S65, U. S. DEPARTMENT OF AGRICULTURE. 



Afi the land and building- are frequently purchased at the same time, the purcha-e 

 price will include both assets. Care must be exercised that a proper division of these 

 assets is made as depreciation is to be figured only iqxm the buildings. 



Machinery axd Equipment (C 3). 



Debit: 



Credit: 



1. With the cost of all the machinery 



1. 



With the total book value of any ma- 



as shewn by the Balance Sheet at 





chinery and equipment that is sold 



the time of opening the books. 





or discarded. 



2. With the cost of additions or alter- 







ations prowled the efficiency is- 







materially increased. 







3. With freight, express, and drayage 







charges on any purchase. 







4. With cost of installation. 







This account should be charged with the costs of all items of machinery and equip- 

 ment, which, under ordinary circumstances, will last three years or more, such as 

 engines, boilers, motors, etc. When any article winch has been charged to this account 

 is to be replaced, the asset account should be credited with the cost value placed on 

 this item at the time of opening the books or at the time of subsequent purchase. 

 Example: A piece of machinery costing $100 was replaced by a new one costing $150, 

 cash being paid for the new article. The Journal entry would be made as follows: 



Debit. Credit. 



$100 Reserve for Depreciation on Machinery and Equipment. 



Machinery and Equipment $100 



(For discarded machine costing $100.) 

 150 Machinery and Equipment. 



Bank Account 150 



(For purchase of new machine.) 

 To the invoice value of any machinery purchased should be added any expense in- 

 curred, such as freight or installation charges. In case the amount set aside as Re- 

 serve for Depreciation on Plant is not sufficient to cover the original cost of the item 

 replaced, the loss sustained should be charged to an account specifically captioned. 

 Example: A boiler costing $150 was completely destroyed by an explosion. At the 

 time the account Reserve for Depreciation on Machinery and Equipment shows a 

 credit balance of $100. It was necessary to pay $200 for a similar boiler. The follow- 

 ing Journal entries should be made: 



Debit. Credit. 



850 Reserve for Depreciation on Machinery and Equipment. 

 100 Loss, boiler explosion. 



Machinery and Equipment $150 



(For los3 en Machinery and Equipment on account of explosion.) 

 200 Machinery and Equipment. 



Bank account 200 



(For purchase of new boiler.) 



In the above entries it should be carefully noted that the full amount set aside as a 

 Reserve for Depreciation on Machinery and equipment has not been entirely ex- 

 hausted by this loss, inasmuch as this fund is set aside to cover depreciation on all the 

 machinery and equipment, and only the relative proportion applying to the boiler can 

 \>f 'barged to the reserve account. 



