CMA Intermediate · Financial Accounting · Property, Plant and Equipment (AS 10)
Bharat Metals Ltd sold a machine for net disposal proceeds of Rs 3,10,000. The machine's original cost was Rs 10,00,000 and accumulated depreciation up to the date of sale was Rs 6,50,000. What is the result recognised in the statement of profit and loss?
The result is a loss of Rs 40,000. The carrying amount is cost Rs 10,00,000 less accumulated depreciation Rs 6,50,000, which is Rs 3,50,000. Net disposal proceeds of Rs 3,10,000 are below this, so the difference is a loss, recognised in profit and loss.
- ALoss of Rs 40,000Correct
- BProfit of Rs 40,000
- CProfit of Rs 3,10,000
- DLoss of Rs 6,90,000
Explanation
Carrying amount = 10,00,000 - 6,50,000 = Rs 3,50,000. Gain or loss = net disposal proceeds - carrying amount = 3,10,000 - 3,50,000 = loss of Rs 40,000. Comparing proceeds with cost (loss 6,90,000) is wrong because the carrying amount is the base.
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