Question

A company purchases machinery for ₹10 lakhs and incurs

Q: Answer-A company purchases machinery for ₹10 lakhs and incurs ₹1 lakh on its installation. The accountant r...

Installation cost is necessary to bring the asset to its working condition. Hence, its capitalised along with the cost of the asset.

₹1 lakh on its installation. The accountant records the total ₹11 lakhs under the fixed asset head. However, a junior accountant argues that the installation should be treated as a revenue expense. Considering the nature of the transaction and accounting principles, how should this cost be classified?

A As a capital expenditure because it enhances the future benefit

B As a revenue expenditure because it's incurred after purchase

C As a deferred revenue expense to be written off over time

D As a non-operating expenditure, not to be recorded in the books

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A company purchases machinery for ₹10 lakhs and incurs

Solution