Multiple choice

A machinery was purchased on April 1, 2009 for Rs. 5,00,000. It was depreciated @ 20% p.a. on reducing balance method. If 1/4th of it was sold on January 1, 2012 for Rs. 70,000, calculate profit or loss on the sale of machinery.

  1. Rs. 2,000 profit

  2. Rs. 2,000 loss

  3. Rs. 13,750 profit

  4. Rs. 2,02,000 loss
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A Correct answer
Explanation

Cost of 1/4th of machinery = Rs. 1,25,000 Depreciation for the 1st year = Rs. 25000 and WDV = Rs. 1,00,000 Depreciation for the 2nd year = 20% of Rs. 1,00,000 = Rs. 20,000 and WDV = Rs. 80,000 Depreciation for 9 months in the 3rd year = 20% of Rs. 80,000 = Rs.12,000 Thus, WDV = Rs. 68,000, Sale price = Rs. 70,000 Thus, profit on the sale of machinery is Rs. 2,000.

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