CA Foundation · Accounting · Theoretical Framework
Bhatia Traders purchased a second-hand machine for ₹2,00,000, paid ₹15,000 for transporting it, ₹10,000 for its repairs to make it usable, and ₹5,000 for routine annual maintenance after it started working. What amount should be capitalised as the cost of the machine?
The capitalised cost is ₹2,25,000. It includes the purchase price of ₹2,00,000, transport of ₹15,000 and initial repairs of ₹10,000 needed to make the machine usable. Routine maintenance of ₹5,000 after commencement of use is a revenue expense.
- A₹2,25,000Correct
- B₹2,15,000
- C₹2,30,000
- D₹2,00,000
Explanation
Capitalised cost = 2,00,000 + 15,000 (transport) + 10,000 (repairs to make it usable) = ₹2,25,000. Routine maintenance of ₹5,000 after use begins is a revenue expense. Including it gives ₹2,30,000, which is wrong.
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