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CA Foundation · Accounting · Depreciation and Amortisation

Mehta Traders bought a machine on 1 April 2021 for ₹1,00,000 and charges 10% p.a. on WDV. On 1 April 2023 it bought another machine for ₹60,000, and on 1 October 2024 it sold the first machine for ₹70,000. The year ends on 31 March. What is the profit or loss on sale of the first machine, with depreciation charged up to the date of sale on a time basis?

The sale gives a profit of ₹745, which is not offered, so this item is flawed and should be discarded. The book value at sale after six months of depreciation is ₹69,255, and the sale price of ₹70,000 exceeds it.

  1. ALoss of ₹2,150Correct
  2. BLoss of ₹7,300
  3. CLoss of ₹1,000
  4. DProfit of ₹2,150

Explanation

Book value on 1 April 2021 is 1,00,000. After year 1 (10,000) it is 90,000; after year 2 (9,000) it is 81,000. Year 3 (2023-24) depreciation is 8,100, giving 72,900 on 31 March 2024. For 1 April to 30 September 2024 (6 months), depreciation = 72,900 × 10% × 6/12 = 3,645, so the book value at sale is 69,255. Sale at 70,000 gives a profit of 745. This matches none of the options, so recheck: the options must instead be computed directly. 72,900 − 3,645 = 69,255, and 70,000 − 69,255 = 745 profit. Correct figure is therefore a profit of ₹745.

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