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CA Foundation · Accounting · Depreciation and Amortisation

When an asset is sold during the year, which treatment of depreciation is correct under ICAI's Foundation-level approach?

Depreciation should be charged up to the date of sale, and only then is the profit or loss on sale computed against the resulting book value. The asset was used until sale, so its cost must be allocated for that period.

  1. ACharge depreciation on the asset up to the date of sale before computing profit or loss on saleCorrect
  2. BCharge no depreciation in the year of sale
  3. CCharge a full year's depreciation regardless of the date of sale
  4. DCharge depreciation only from the date of sale

Explanation

Depreciation must be provided up to the date of sale because the asset was used until then. Only after this does one compute the book value and the profit or loss on sale. Skipping depreciation overstates book value and distorts the gain or loss.

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