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CMA Foundation · Fundamentals of Financial and Cost Accounting · Depreciation (Straight Line and Diminishing Balance Methods)

Gupta Ltd purchased a machine on 1 July 2023 for Rs 3,60,000 and spent Rs 40,000 on installation. Depreciation is 10% p.a. on straight line method, charged on a time basis, and books close on 31 March. The machine is sold on 31 December 2024 for Rs 3,00,000. Profit or loss on sale is:

  1. ALoss of Rs 10,000Correct
  2. BProfit of Rs 10,000
  3. CLoss of Rs 40,000
  4. DProfit of Rs 30,000

Explanation

Cost = 4,00,000. Depreciation for 2023-24 (9 months) = 30,000. For 2024-25 up to 31 December (9 months) = 30,000. Total = 60,000, WDV = 3,40,000. Sale at 3,00,000 gives a loss of 40,000. Hence the loss is Rs 40,000, not 10,000.

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