Q.A machine costing ₹60,000, purchased on 1 April 2023, was depreciated at 10% per annum under the Straight Line Method using a Provision for Depreciation Account. It was sold on 31 March 2026 (after 3 full years) for ₹38,000. Prepare the Machine Account, the Provision for Depreciation Account, and the Machine Disposal Account, and compute the profit or loss on sale.

Transfer the asset's cost AND its accumulated depreciation into a Machine Disposal Account, add the sale proceeds, and the account's balancing figure reveals the profit or loss.

Annual depreciation = 60,000 × 10% = ₹6,000. Over 3 full years (2023-24 to 2025-26), accumulated depreciation in the Provision for Depreciation Account = 3 × 6,000 = ₹18,000. Book value on the date of sale = 60,000 − 18,000 = ₹42,000; sold for ₹38,000, giving a LOSS on sale of 42,000 − 38,000 = ₹4,000.

Machine Account

Provision for Depreciation Account

Machine Disposal Account

A common error is trying to compute the profit/loss directly by comparing sale proceeds against the Machine Account's own balance — under the Provision method, the Machine Account only ever shows the ORIGINAL COST, never the book value, so the comparison MUST be made …