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

Sagar Packaging Ltd. bought a machine on 1 April 2021 for ₹20,00,000, including a motor of ₹2,00,000 that is depreciated separately. Both have a 10-year life, nil residual value and straight-line depreciation. On 1 April 2024 the motor was replaced by a new one costing ₹3,50,000 paid in cash, and the old motor was scrapped for nil proceeds. What amount is derecognised as loss on the old motor, assuming the new motor meets the recognition criteria?

The loss on the old motor is ₹1,40,000. Its original cost of ₹2,00,000 less three years of depreciation at ₹20,000 a year (₹60,000) gives a carrying amount of ₹1,40,000, which is derecognised with nil proceeds. The new motor is capitalised separately at ₹3,50,000.

  1. A₹1,40,000Correct
  2. B₹2,00,000
  3. C₹60,000
  4. D₹3,50,000

Explanation

Old motor depreciation for 3 years = 2,00,000 × 3/10 = ₹60,000. Carrying amount = 2,00,000 − 60,000 = ₹1,40,000, which is written off as a loss since scrap proceeds are nil. The new motor is capitalised at ₹3,50,000. Writing off ₹2,00,000 would ignore depreciation already charged.

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