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CMA Intermediate · Financial Accounting · Property, Plant and Equipment (AS 10)

Kaveri Textiles Ltd retired a loom with cost Rs 8,00,000 and accumulated depreciation Rs 7,20,000 on 31 March. The loom is not expected to yield any future economic benefit from use or disposal. Separately, the firm sold an old generator, carrying amount Rs 1,50,000, on credit for Rs 1,80,000 on that date, with all risks and rewards transferred to the buyer. Net amount recognised in the statement of profit and loss for these two events, taking gain as positive, is:

The net result is a loss of Rs 50,000. The retired loom has a carrying amount of Rs 80,000 and no proceeds, so loss is Rs 80,000. The generator sale gives a gain of Rs 30,000 on a carrying amount of Rs 1,50,000. Net is Rs 50,000 loss.

  1. ANet gain of Rs 30,000
  2. BNet loss of Rs 50,000Correct
  3. CNet loss of Rs 80,000
  4. DNet loss of Rs 1,10,000

Explanation

The retired loom is derecognised with carrying amount 8,00,000 - 7,20,000 = Rs 80,000 and no proceeds, giving a loss of Rs 80,000. The generator sale is a disposal on credit with the criteria of AS 9 met, so the gain is 1,80,000 - 1,50,000 = Rs 30,000. Net = 30,000 - 80,000 = loss of Rs 50,000. Ignoring the loom loss gives the wrong gain of Rs 30,000.

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