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

Narmada Foods Ltd bought a machine on 1 April 2021 for ₹10,00,000 and depreciates it at 10% per annum on original cost (straight line) with nil residual value. The machine was sold on 30 September 2024 for ₹7,00,000. The company charges depreciation up to the date of sale. What is the profit or loss on disposal to be recognised?

The company recognises a profit of ₹50,000. Depreciation for three and a half years is ₹3,50,000, leaving a carrying amount of ₹6,50,000. Sale proceeds of ₹7,00,000 exceed this by ₹50,000, which is the gain on disposal.

  1. ANil
  2. BProfit of ₹1,00,000
  3. CLoss of ₹50,000
  4. DProfit of ₹50,000Correct

Explanation

Period of use is 3.5 years, so depreciation = ₹1,00,000 × 3.5 = ₹3,50,000 and the carrying amount at sale is ₹6,50,000. Profit = ₹7,00,000 − ₹6,50,000 = ₹50,000. Using 3 full years gives a carrying amount of ₹7,00,000 and nil profit, while using 4 years gives a profit of ₹1,00,000.

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