Q.A machine costing ₹1,20,000, purchased on 1 April 2021, was depreciated at 10% per annum under the Straight Line Method, using a Provision for Depreciation Account. It was sold on 31 March 2025 (after 4 full years) for ₹75,000. 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 balancing figure gives the profit or loss.

Annual depreciation = 1,20,000 × 10% = ₹12,000. Over 4 full years (2021-22 to 2024-25), accumulated depreciation in the Provision for Depreciation Account = 4 × 12,000 = ₹48,000. Book value on the date of sale = 1,20,000 − 48,000 = ₹72,000; sold for ₹75,000, giving a PROFIT on sale of 75,000 − 72,000 = ₹3,000.

Machine Account

Provision for Depreciation Account

Machine Disposal Account

A common error is trying to work out the profit or loss directly from 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 always be made throug …