AccountsISC Class 11 · Depreciation

Recording Depreciation and Sale of an Asset: ISC Class 11 Accounts

Updated 17 October 2026 · Fact-checked

Depreciation can be recorded by crediting the asset account directly (the asset is shown at its reducing book value) or by crediting a Provision for Depreciation account (the asset stays at cost and the provision is deducted in the balance sheet). In both cases Depreciation is debited and transferred to the Profit and Loss Account. When an asset is sold, the difference between the sale price and the book value is a profit or loss.

Understand Recording Depreciation: Provision for Depreciation and Sale of an Asset

Method 1: charging to the asset account. Entry each year: Depreciation A/c Dr, To Asset A/c. Transfer: Profit and Loss A/c Dr, To Depreciation A/c. The asset shows its book value (cost - depreciation so far).

Method 2: provision for depreciation (accumulated depreciation). Entry: Depreciation A/c Dr, To Provision for Depreciation A/c. The asset stays at cost; the provision accumulates. Balance sheet: Asset at cost less provision.

Sale of an asset. *Under Method 1:* sale price compared with the book value. Entry: Bank Dr, To Asset; transfer the difference to Profit and Loss as profit or loss on sale. *Under Method 2:* open a Machinery Disposal (Asset Disposal) Account: debit it with the cost of the asset; credit it with the provision accumulated on it and the sale proceeds. The balance is a profit (credit balance) or loss (debit balance) on sale.

Entries (Method 2). (1) Disposal A/c Dr, To Machinery (cost). (2) Provision for Depreciation A/c Dr, To Disposal A/c (accumulated depreciation of the asset sold). (3) Bank Dr, To Disposal A/c (sale proceeds). (4) Disposal A/c Dr, To Profit on sale (or Loss on sale Dr, To Disposal A/c). Depreciation up to the date of sale must be charged before.

Profit or loss on sale = Sale price - Book value where book value = Cost - Accumulated depreciation.

Provision vs reserve. Provision for depreciation is charged against profit and reduces the asset; it is not an appropriation of profit. Reserve is a set-aside of profit.

Which method is shown in the balance sheet? Method 1: Machinery (net). Method 2: Machinery at cost, less provision.

Recording Depreciation: Provision for Depreciation and Sale of an Asset: key facts

Profit/loss on sale: Profit or loss = Sale price - Book value | Book value = Cost - Accumulated depreciation; Profit if positive.
Disposal account balance: Disposal A/c: Dr cost
Cr provision and sale proceeds
Balance is profit or loss; Credit balance is a profit.
Balance sheet: Asset at cost - Provision for depreciation = Book value | Method 2 presentation; Both shown.

How to answer Recording Depreciation: Provision for Depreciation and Sale of an Asset questions

Decide the method, then post year by year.

1Compute depreciation for each year.
2Post it to the asset account or the provision account.
3For a sale, find depreciation up to the date of sale and the book value.
4Find the profit or loss by comparing the sale price and book value; post to Profit and Loss.

Recording Depreciation: Provision for Depreciation and Sale of an Asset in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Book value vs sale price

Suppose a tuition centre bought a projector for Rs 50,000, charged Rs 12,000 depreciation per year for 3 years, and sells it for Rs 18,000.

Find the profit or loss.

Try it first, then show the solutionSolution

Accumulated depreciation = 36,000; book value = 14,000.
Sale price 18,000 - 14,000 = 4,000.

Answer: Profit of Rs 4,000.

Memory hook: Sale price against book value, not against cost.

Tricks to remember Recording Depreciation: Provision for Depreciation and Sale of an Asset

Short memory aids. Say each one aloud once, then use it on a question the same day.

Two methods, same P&L
Both give the same depreciation charge; only the balance sheet differs.
Use it when: Methods.
Disposal account
Dr cost; Cr provision and cash; balance is the result.
Use it when: Sale of asset.
Depreciate first, then sell
Charge up to the sale date before computing profit.
Use it when: Order of work.

Recording Depreciation: Provision for Depreciation and Sale of an Asset: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Entry · 1 mark · MCQBoard level

Under the provision method, depreciation of the year is credited to:
(a) Asset account (b) Provision for Depreciation account (c) Bank account (d) Reserve

Try it first, then show the solutionSolution

The asset stays at cost; the provision is credited.

Answer: (b) Provision for Depreciation account

Example 2: Asset account method · 5 marks · Long answerBoard level

Machinery costing Rs 2,00,000 is bought on 1 April 2023. Depreciation is 10% p.a. by SLM, charged to the asset account. Show the Machinery account for 3 years and the book value on 31 March 2026. (5 marks)

Try it first, then show the solutionSolution

Annual depreciation = 20,000.
Closing balances: 2024: 1,80,000; 2025: 1,60,000; 2026: 1,40,000.

Answer:

Year	Dr	Cr (Depreciation)	Balance c/d
2023-24	2,00,000	20,000	1,80,000
2024-25	1,80,000	20,000	1,60,000
2025-26	1,60,000	20,000	1,40,000

Book value on 31 March 2026: Rs 1,40,000.

Example 3: Sale with disposal account · 6 marks · Long answerHarder board level

A machine bought on 1 April 2023 for Rs 1,00,000 is depreciated at 10% p.a. SLM with a provision for depreciation account. It is sold on 31 March 2026 for Rs 65,000. Show the Machinery Disposal Account and state the result. (6 marks)

Try it first, then show the solutionSolution

Accumulated depreciation for 3 years = 30,000.
Book value = 70,000; sale price 65,000.
Disposal: Dr cost 1,00,000; Cr provision 30,000 and bank 65,000 = 95,000; balance Dr 5,000 is a loss.

Answer:

Machinery Disposal A/c Dr	Rs	Cr	Rs
To Machinery	1,00,000	By Provision for depreciation	30,000
		By Bank	65,000
		By Loss on sale (P&L)	5,000
Total	1,00,000	Total	1,00,000

Loss on sale Rs 5,000.

Example 4: WDV and mid-year sale · 6 marks · Long answerHarder board level

A machine of Rs 1,00,000 bought on 1 January 2023 is depreciated at 10% WDV annually (year end 31 December). It is sold on 30 June 2025 for Rs 80,000. Find the depreciation for 2025 up to the date of sale and the profit or loss. (6 marks)

Try it first, then show the solutionSolution

2023: 10,000, book value 90,000. 2024: 9,000, book value 81,000.
2025 up to 30 June: 10% of 81,000 x 6/12 = 4,050; book value 76,950.
Profit = 80,000 - 76,950 = Rs 3,050.

Answer: Depreciation to the date of sale Rs 4,050; book value Rs 76,950; profit on sale Rs 3,050.

Example 5: Balance sheet view · 6 marks · Long answerHOTS / competency

A firm shows Machinery at Rs 6,00,000 and Provision for Depreciation Rs 2,10,000. It sells a machine with cost Rs 1,00,000 and provision Rs 40,000 for Rs 50,000. Find the profit or loss, the new cost, the new provision and the new book value. Explain why selling below cost is not necessarily a loss. (6 marks)

Try it first, then show the solutionSolution

Book value of the machine = 60,000; sale price 50,000: loss 10,000.
New cost = 5,00,000; new provision = 1,70,000.
New book value = 3,30,000.
The sale price of 50,000 is below cost but loss is measured against book value 60,000, so the loss is only 10,000.

Answer: Loss Rs 10,000; cost Rs 5,00,000; provision Rs 1,70,000; book value Rs 3,30,000. The loss compares sale price with book value, not cost.

Where students lose marks in Recording Depreciation: Provision for Depreciation and Sale of an Asset

The slips examiners see most often, and what to write instead.

Mistake: Profit computed from cost
Ignoring depreciation.
Wrong working
65,000 - 1,00,000 = loss 35,000
Right working
65,000 - 70,000 = loss 5,000
Do this: Compare with book value.
Usually costs: 2-3 marks.
Mistake: No depreciation up to date of sale
Skipping months.
Wrong working
Using 81,000
Right working
81,000 - 4,050 = 76,950
Do this: Charge up to the sale date.
Usually costs: 2 marks.
Mistake: Crediting provision twice
Entry confusion.
Wrong working
Provision for depreciation Cr on the sale
Right working
Provision Dr (transferred) on the sale
Do this: On sale, debit the provision.
Usually costs: 1-2 marks.

Exam tips

Always show the machinery disposal account for provision method questions.
Mention where the profit or loss goes: Profit and Loss account.
State the method in your first line.

Practice questions on Recording Depreciation: Provision for Depreciation and Sale of an Asset

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
Under the provision method, the asset appears in the balance sheet at:
(a) book value only (b) cost, less provision for depreciation (c) cost only (d) market value
Hint
Both figures shown.
Answer
(b) cost, less provision for depreciation
Q2 · 3 marks · Short answerBoard level
Differentiate between charging depreciation to the asset account and providing through a provision account. (3 marks)
Hint
Asset value in books.
Answer
Charging the asset account reduces the asset to book value and shows it net. Under the provision method the asset stays at cost and the accumulated depreciation is shown as a deduction in the balance sheet; the profit and loss charge is the same.
Q3 · 6 marks · Long answerHarder board level
A machine purchased for Rs 2,40,000 on 1 April 2022 is depreciated at 15% p.a. SLM on cost (provision method). It is sold on 31 March 2025 for Rs 1,10,000. Find accumulated depreciation, profit or loss and prepare the disposal account. (6 marks)
Hint
Dep per year 36,000.
Answer
Accumulated depreciation 3 x 36,000 = 1,08,000; book value 1,32,000; loss 22,000. Disposal A/c: Dr cost 2,40,000; Cr provision 1,08,000, bank 1,10,000, loss 22,000.
Q4 · 6 marks · Long answerHarder board level
Machinery of Rs 3,00,000 purchased on 1 April 2023 is depreciated at 20% WDV. On 1 October 2025 the machinery is sold for Rs 1,50,000. Find the depreciation for the last period, the book value on the date of sale and the profit or loss. (6 marks)
Hint
Year-end 31 March; 6 months.
Answer
2023-24: 60,000 (2,40,000). 2024-25: 48,000 (1,92,000). 2025-26 to 1 October: 1,92,000 x 20/100 x 6/12 = 19,200; book value 1,72,800. Loss = 1,72,800 - 1,50,000 = Rs 22,800.
Q5 · 4 marks · Short answerHOTS / competency
A firm credits depreciation directly to the machinery account and later sells a machine for more than its cost. The manager says "we made a profit of the whole sale price". Evaluate with cost Rs 80,000, depreciation to date Rs 30,000 and sale price Rs 95,000. (4 marks)
Hint
Book value 50,000.
Answer
The profit is only the excess over book value: 95,000 - 50,000 = Rs 45,000. The sale price is a capital receipt; the 50,000 is the recovery of the asset's book value, not profit.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Method 1 credits depreciation to?Show answer
The asset account.
2.Method 2 credits it to?Show answer
Provision for depreciation.
3.Profit on sale equals?Show answer
Sale price minus book value.
4.Which account on sale (Method 2)?Show answer
Asset disposal account.
5.Where does the profit or loss go?Show answer
Profit and Loss Account.

Recording Depreciation: Provision for Depreciation and Sale of an Asset: frequently asked questions

Is the P&L charge different between methods?

No.

Is provision an appropriation?

No, a charge against profit.

Why charge depreciation to date of sale?

To get the correct book value.

Is disposal a nominal account?

It is a transfer account closed to the P&L.