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Question
A manufacturing company purchased on 1st April 2010, a plant and machinery for ₹ 4,50,000 and spent ₹ 50,000 on its installation. After having used it for three years, it was sold for ₹ 3,85,000. Depreciation is to be provided every year at the rate of 15% per annum on the fixed installment method. Accounts are closed on 31st March every year. Calculate profit or loss on sale of machinery.
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Solution
Calculation of Profit or Loss on sale of Machinery
| Date | Particulars | ₹ | |
| 01.04.2010 | Plant and machinery purchased | 4,50,000 | |
| 01.04.2010 | Add: Its installation | 50,000 | |
| 01.04.2010 | Original cost | = | 5,00,000 |
| 31.03.2011 | Less: Depreciation @ 15% | = | 75,000 |
| 01.04.2011 | Book Value | = | 4,25,000 |
| 31.03.2012 | Less: Depreciation @ 15% | = | 75,000 |
| 01.04.2012 | Book Value | = | 3,50,000 |
| 31.03.2013 | Less: Depreciation @ 15% | = | 75,000 |
| 01.04.2013 | Book Value | = | 2,75,000 |
Selling price – Book value = Profit
= 3,85,000 – 2,75,000 = 1,10,000
Profit on sale of Machinery is = ₹ 1,10,000.
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