Question
A company purchases machinery for ₹10 lakhs and incurs
₹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?Solution
Installation cost is necessary to bring the asset to its working condition. Hence, it's capitalised along with the cost of the asset.
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