CA Foundation · Accounting · Depreciation and Amortisation
Rajesh Enterprises had machinery with a book value of ₹3,00,000 (cost ₹5,00,000, accumulated depreciation ₹2,00,000). On 31 March 2024 it was sold for ₹3,40,000. What is the result of the sale?
The sale results in a profit of ₹40,000. Gain or loss on disposal is measured against the book value, not the original cost. Book value is ₹3,00,000 and sale proceeds are ₹3,40,000, so the excess of ₹40,000 is a profit.
- AProfit of ₹40,000Correct
- BLoss of ₹1,60,000
- CProfit of ₹1,40,000
- DLoss of ₹40,000
Explanation
Profit or loss on sale = sale proceeds − book value (written down value). 3,40,000 − 3,00,000 = ₹40,000 profit. Comparing the sale price with original cost gives a loss of ₹1,60,000, which is the wrong base.
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