A machine with a carrying amount of Rs. 40,000 is sold by a sole trader for Rs. 50,000. What is the result of the disposal?
Correct answer: A. A gain of Rs. 10,000
- A. A gain of Rs. 10,000
- B. A loss of Rs. 10,000
- C. Revenue of Rs. 50,000
- D. No profit or loss is recognised
Explanation
The gain equals the sale proceeds less the machine's carrying amount, giving Rs. 50,000 minus Rs. 40,000, or Rs. 10,000. The full sale proceeds are not treated as revenue from ordinary trading activities.
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About Financial Statements of Sole Traders
Sole trader statements calculate revenue, cost of sales, gross profit, operating expenses and net profit, then present assets, liabilities and owner’s capital in the statement of financial position. Adjustments for closing inventory, accruals, prepayments, depreciation, bad debts, drawings and additional capital connect the two statements.
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