Question

A trader purchased a machinery for Rs.10,000 in jan 2004, Depreciation is charged @ 25% diminishing balance. At the end of third year it was sold for Rs.1,000. Profit or Loss on sale of machine will be:

• A. Profit Rs. 2,400
• B. Profit Rs. 2,300
• C. Loss Rs. 2,406
• D. Loss Rs.. 3219

Answer 1

The correct option is D Loss Rs.. 3219

Profit/loss on sale of asset = sale value - WDV of the asset

= 1,000 - 4,219

= Loss of 3,219

Working notes:-

Depreciation for 1st year :-

= cost of the machine x rate of machinery

= 10,000 x 25/100

= RS- 2,500

Depreciation for 2nd year :-

= (10,000 - 2,500) 7,500 x 25/100

= RS-1,875.

Depreciation for the 3rd year :-

= (7,500 - 1,875) 5,625 x 25/100

= RS-1,406.

WDV of asset at the end of the 3rd year :-

= 10,000 - (2,500 + 1,875 + 1,406)

= RS-4,219.