second hand car is purchased for Rs 2,00,000 at the beginning of the accounting period and sold at Rs 1,40,000 after two years. If depreciation is charged @ 10% on Straight Line method, find the profit or loss on sale of the car.
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Car sold at a loss of Rs. 60,000 and the selling price is Rs. 1,00,000 i.e. the book value after 2 years is Rs. 1,00,000 + Rs. 60,000 = Rs. 1,60,000
Depreciable cost of the car = Rs. 2,00,000 + Rs. 50,000 = Rs. 2,50,000
Total amount of depreciation charged = Rs. 2,50,000 - Rs. 1,60,000 = Rs. 90,000
1st year depreciation = Rs. 2,50,000 x 20% = Rs. 50,000, Book value = Rs. 2,50,000 - Rs. 50,000 = Rs. 2,00,000
2nd year depreciation = Rs. 2,00,000 x 20% = Rs. 40,000, Book value = Rs. 2,00,000 - Rs. 40,000 = Rs. 1,60,000
Hence the car is depreciated at 20% WDV.
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