Question

A motor van was bought for Rs. 20,000 on 1st September 2005 with a residual value of Rs. 2,000.
Depreciation was charged at 20% by the reducing balance method on yearly basis.
It was sold for Rs. 18,000 after three years of use on 30th September 2008.
Compute the profit on sale of asset.

• A. Rs. 7,760
• B. Rs.8,784
• C. Rs. 5,201
• D. Rs. 990

Answer 1

The correct option is A

Rs. 7,760

Year	Value	Depreciation	WDV
2005-2006	20,000	4,000	16,000
2006-2007	16,000	3,200	12,800
2007-2008	12,800	2,560	10,240

Profit
= Rs. 18,000 - Rs. 10,240
= Rs. 7,760