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CMA Foundation · Fundamentals of Financial and Cost Accounting · Depreciation (Straight Line and Diminishing Balance Methods)

Rao & Co. bought a machine on 1 April 2021 for Rs 4,00,000, depreciating it by SLM at 10% on original cost per year (no scrap). On 31 March 2024 the machine was sold for Rs 2,50,000. The profit or loss on sale is:

There is a loss of Rs 30,000 on sale. Three years of SLM depreciation at Rs 40,000 reduce the book value to Rs 2,80,000, and the machine fetched only Rs 2,50,000, so the shortfall is a loss.

  1. ALoss of Rs 30,000
  2. BProfit of Rs 30,000Correct
  3. CProfit of Rs 1,50,000
  4. DProfit of Rs 10,000

Explanation

Annual depreciation = Rs 40,000; for 3 years = Rs 1,20,000. Book value at sale = 4,00,000 - 1,20,000 = Rs 2,80,000. Sale price Rs 2,50,000 is less than book value, so there is a loss of Rs 30,000.

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