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CA Foundation · Accounting · Depreciation and Amortisation

A firm sells a fixed asset for less than its written down value on the date of sale. How is the difference treated in the books?

The shortfall is debited to the Profit and Loss Account as a loss on sale of the asset. When sale proceeds are lower than the written down value, the difference is a loss on disposal and is written off to profit and loss, not carried forward.

  1. ADebited to the Profit and Loss Account as loss on sale of assetCorrect
  2. BCredited to the Profit and Loss Account as profit on sale
  3. CDebited to the Asset Account and carried forward
  4. DCredited to the Provision for Depreciation Account of other assets

Explanation

When the sale price is below the book (written down) value, the shortfall is a loss on disposal. It is charged to the Profit and Loss Account and not carried forward in the asset account. The profit option is wrong because proceeds are lower than book value.

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