On 1 Jan 2011, Company A purchased a vehicle costing Rs20,000. The company expects the vehicle to be operational for 4 years at the end of which it can be sold for Rs5,000. It was sold at the end of year 2012 for Rs 10000. Calculate profit or loss.

Profit of Rs 2,500

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Loss of Rs 7,500

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Profit of Rs 7,500

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Loss of Rs 2,500

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Solution

The correct option is D
Loss of Rs 2,500

Particulars Amount Calculation

Depreciable amount of the vehicle 15000 (Rs 20000 - Rs 5000)

Depreciation expense 3750 (15000/4)

Particulars Amount

Book value of vehicle as on 01-01-2011 20000

Less: Depreciation for 2011 3750

Less: Depreciation for 2012 3750

Book value of vehicle as on 31-12-2012 12500

Loss= 12,500-10,000= Rs 2,500.

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Particulars	Amount	Calculation
Depreciable amount of the vehicle	15000	(Rs 20000 - Rs 5000)
Depreciation expense	3750	(15000/4)

Particulars	Amount
Book value of vehicle as on 01-01-2011	20000
Less: Depreciation for 2011	3750
Less: Depreciation for 2012	3750
Book value of vehicle as on 31-12-2012	12500