CMA Foundation · Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions
Anand Ltd. purchased a second-hand machine for Rs 1,50,000. It paid Rs 20,000 for repairs needed to make the machine workable and Rs 5,000 for routine repairs after it started running. What amount should be capitalised as the cost of the machine?
The capitalised cost is Rs 1,70,000. Purchase price plus the Rs 20,000 of repairs needed to make the second-hand machine workable is capital expenditure, while the later Rs 5,000 routine repairs are revenue expenditure charged to profit.
- ARs 1,50,000
- BRs 1,75,000
- CRs 1,55,000
- DRs 1,70,000Correct
Explanation
Repairs needed to bring a second-hand machine into working condition are part of its cost: 1,50,000 + 20,000 = Rs 1,70,000. The Rs 5,000 routine repairs after use are revenue expenditure. Rs 1,75,000 wrongly capitalises the routine repairs as well.
Did you get it right without looking?
One question tells you little. A timed set on Capital and Revenue Transactions shows your real accuracy, how long you take and where you lose marks.
More Capital and Revenue Transactions questions
- Iyer Ltd. had a machine with book value Rs 1,50,000. During the year it incurred: Rs 40,000 on a major overhaul that extends the machine's u…
- Which of the following is treated as deferred revenue expenditure in the books of a firm?
- Anand Textiles incurred Rs 2,40,000 on an advertising campaign that is expected to benefit the business for 4 years. It wrote off Rs 60,000 …
- Gupta Foods Ltd. spent Rs 6,00,000 on a heavy advertising campaign to launch a new brand, and the benefit is expected to last 5 years. If it…
- Gupta Textiles bought a second-hand machine for Rs 1,50,000. It paid Rs 12,000 for repairs needed to make it workable, Rs 5,000 for transpor…
- Which of the following items is most appropriately treated as deferred revenue expenditure?