CA Foundation · Accounting · Depreciation and Amortisation
Kavya Media Ltd. acquired a licence on 1 October 2023 for ₹14,40,000, available for use from that date, with a useful life of 6 years and nil residual value. It uses the straight-line method and charges amortisation from the date of availability for use. On 1 October 2025 the licence is sold for ₹11,00,000. The profit or loss on sale is:
The sale gives a profit of ₹1,40,000. Annual amortisation is ₹2,40,000, so two years total ₹4,80,000 and book value is ₹9,60,000. Selling at ₹11,00,000 exceeds book value by ₹1,40,000.
- AProfit of ₹1,60,000Correct
- BLoss of ₹1,40,000
- CProfit of ₹1,40,000
- DLoss of ₹1,60,000
Explanation
Annual amortisation is 14,40,000/6 = 2,40,000. Two years (1 Oct 2023 to 1 Oct 2025) gives 4,80,000, so book value is 9,60,000. Sale price 11,00,000 minus 9,60,000 gives a profit of 1,40,000. Hence the correct figure is a profit of ₹1,40,000, not 1,60,000.
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