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CSEET · Fundamentals of Accounting · Depreciation and Amortization

Gupta Ltd bought a machine for ₹5,00,000 on 1 April 2022 and charges depreciation at 10% p.a. on the straight-line method on original cost. On 31 March 2025 it sells the machine for ₹3,10,000. What is the profit or loss on sale?

The machine has a book value of ₹3,50,000 after three years of depreciation at ₹50,000 a year. Selling it for ₹3,10,000 is below book value, so there is a loss of ₹40,000.

  1. ALoss of ₹40,000
  2. BProfit of ₹10,000Correct
  3. CProfit of ₹60,000
  4. DLoss of ₹10,000

Explanation

Annual depreciation is 10% of 5,00,000 = 50,000. For 3 years, accumulated depreciation is 1,50,000, so the book value is 3,50,000. Sale at 3,10,000 against book value 3,50,000 gives a loss of 40,000. Wait: 3,50,000 minus 3,10,000 is 40,000, which is a loss, so the correct choice is the loss of ₹40,000.

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