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CA Intermediate · Advanced Accounting · AS 10 Property, Plant and Equipment

Mehta Engineering Ltd. owns a plant with cost Rs 30,00,000 and accumulated depreciation Rs 18,00,000 at the date of sale. It sold the plant for Rs 9,50,000 and incurred Rs 20,000 as costs of disposal. What is the result of the disposal to be recognised in the statement of profit and loss?

The company records a loss of Rs 2,70,000. The gain or loss on retirement is net disposal proceeds (Rs 9,30,000 after Rs 20,000 costs) minus the carrying amount of Rs 12,00,000. Disposal costs reduce proceeds and are not ignored.

  1. ALoss of Rs 2,70,000Correct
  2. BLoss of Rs 2,50,000
  3. CProfit of Rs 2,30,000
  4. DLoss of Rs 2,30,000

Explanation

Carrying amount = 30,00,000 - 18,00,000 = 12,00,000. Net proceeds = 9,50,000 - 20,000 = 9,30,000. Loss = 12,00,000 - 9,30,000 = 2,70,000. Ignoring disposal costs gives a loss of 2,50,000, which is wrong.

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