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CSEET · Fundamentals of Accounting · Depreciation and Amortization

Iyer Industries bought a machine on 1 April 2022 for Rs 1,00,000 and depreciates it at 15% p.a. on the WDV method. On 1 April 2024 it sold the machine for Rs 80,000. What is the profit or loss on sale?

There is a profit of Rs 7,750 on sale. After two years of 15% WDV depreciation the book value is Rs 72,250 (Rs 85,000 less Rs 12,750), and the sale price of Rs 80,000 exceeds this by Rs 7,750.

  1. ALoss of Rs 5,000 approx. (Rs 4,750)
  2. BProfit of Rs 7,750Correct
  3. CProfit of Rs 2,250
  4. DLoss of Rs 20,000

Explanation

Year 1 depreciation = 15,000, giving a book value of 85,000. Year 2 depreciation = 12,750, giving a book value of 72,250 on 31 March 2024. Sale price 80,000 minus 72,250 = profit of 7,750. Rs 20,000 compares the sale price with the original cost and ignores the depreciation already charged.

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