Hello aspirant,
Here's a brief solution to your question:

• 1st July 2012: The plant is purchased for Rs. 40,000.
• 31st December 2012: Depreciation for 6 months (July to December) is calculated as 10% of 40,000 * 6/12 = Rs. 2,000.
• 30th June 2013: Depreciation for the next 6 months (January to June) is calculated as 10% of 40,000 * 6/12 = Rs. 2,000.
• 1st July 2013: The plant is sold for Rs. 35,000.
  • Calculate the profit or loss on sale:
    • Book value of the plant on 1st July 2013 = Cost - Depreciation = 40,000 - (2,000 + 1,000) = Rs. 37,000
    • Profit on sale = Selling price - Book value = 35,000 - 37,000 = -Rs. 2,000 (Loss)
  • Transfer the loss to Profit & Loss account.
    
    

The depreciation method used here is the straight-line method, where depreciation is calculated on the original cost of the asset. The plant account shows the complete history of the plant from purchase to sale, including depreciation and the final disposa