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

Narmada Engineering Ltd bought equipment for ₹30,00,000 on 1 April 2021, with a useful life of 10 years and nil residual value (straight line). On 1 April 2023 it was revalued to ₹28,00,000, with the remaining life remaining 8 years. The equipment was sold on 1 October 2025 for ₹22,00,000. Depreciation is charged on the revalued amount and pro rata for the period of use. What is the profit on sale to be recognised in the Statement of Profit and Loss?

The profit on sale is ₹2,75,000. Depreciation on the revalued amount is ₹3,50,000 a year, so the carrying amount at the sale date, after two years and six months of depreciation on the revalued figure, is ₹19,25,000. Sale proceeds of ₹22,00,000 less this carrying amount give the profit.

  1. A₹2,75,000Correct
  2. B₹1,00,000
  3. C₹5,50,000
  4. D₹6,75,000

Explanation

Depreciation after revaluation = 28,00,000 / 8 = ₹3,50,000 a year. Carrying amount on 1 April 2025 = 28,00,000 − 7,00,000 = ₹21,00,000. Depreciation for 6 months = ₹1,75,000, so the carrying amount on sale is ₹19,25,000. Profit = 22,00,000 − 19,25,000 = ₹2,75,000. Using historical cost depreciation gives ₹5,50,000, which is wrong. Omitting the part-year depreciation gives ₹1,00,000.

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