Question

CD-13. A company purchased a machine for Rs. 6,00,000 on January 1, 2017. The company purchased another machine at a cost of Rs. 6,00,000 on July 1, 2017. On December 31, 2019, the company sold a machine costing Rs. 1,00,000, purchased on January, 1 2017 for Rs. 50,000. Accounts of the company are closed at the end of December each year and depreciation is charged at 15% per annum using fixed installment method.​

Answer 1

The company incurred a loss of Rs. 5,000 on the sale of the machine.

How to solve

Machine 1

Purchase Date: January 1, 2017

Cost: Rs. 6,00,000

Years of Use: 3

Depreciation Rate: 15%

Annual Depreciation: Rs. (6,00,000 * 15% x 1/100) = Rs. 90,000

Total Depreciation: Rs. 90,000 x 3 = Rs. 2,70,000

Book Value as of December 31, 2019: Rs. 6,00,000 - Rs. 2,70,000 = Rs. 3,30,000

Machine 2

Purchase Date: July 1, 2017

Cost: Rs. 6,00,000

Years of Use: 2.5

Depreciation Rate: 15%

Annual Depreciation: Rs. (6,00,000 * 15% x 1/100) = Rs. 90,000

Total Depreciation: Rs. 90,000 x 2.5 = Rs. 2,25,000

Book Value as of December 31, 2019: Rs. 6,00,000 - Rs. 2,25,000 = Rs. 3,75,000

Machine Sold

Purchase Date: January 1, 2017

Cost: Rs. 1,00,000

Years of Use: 3

Depreciation Rate: 15%

Annual Depreciation: Rs. (1,00,000 x 15% * 1/100) = Rs. 15,000

Total Depreciation: Rs. 15,000 x 3 = Rs. 45,000

Book Value as of December 31, 2019: Rs. 1,00,000 - Rs. 45,000 = Rs. 55,000

Sale Price: Rs. 50,000

Gain or Loss on Sale of Machine

Gain or Loss = Sale Price - Book Value

Gain or Loss = Rs. 50,000 - Rs. 55,000 = Rs. (5,000)

Therefore, the company incurred a loss of Rs. 5,000 on the sale of the machine.