Question

Select the most appropriate answers from the alternatives given below and rewrite the sentence.

The Profit on sale of an asset is debited to __________ Account.
a) Profit and Loss
b) Reserve
c) Asset
d) Balance Sheet.

Answer 1

The profit on sale of asset is debited to Asset account.

Explanation:
When an asset is sold, the sale value of the asset is compared with the book value of the asset. If the sale value is in excess of the book value, the difference is treated as profit on sale of asset. Profit on sale of asset is an income for a business and, thus, it should be credited to the Profit & Loss A/c and the Asset A/c should be debited, as the sale value is in excess of the book value. For example, if an asset is sold for Rs 20,000 and the book value is Rs 17,000, Rs 3000 (20,000-17,000) will be treated as profit on the sale of the asset. So, it will be credited to the Profit & Loss A/c and debited to the Machinery A/c.