Skip to content

CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions

Gupta & Co. bought a machine for Rs 4,00,000 on 1 April 2024. The firm expects to use it for 10 years and charges depreciation on straight line basis with nil scrap value. At 31 March 2025 it learns the machine could be sold for Rs 5,00,000. Under the cost concept and going concern concept, at what value is the machine shown in the balance sheet at 31 March 2025?

The machine is shown at Rs 3,60,000. Under the cost concept it is carried at original cost of Rs 4,00,000 less one year's straight line depreciation of Rs 40,000. The higher resale value of Rs 5,00,000 is not recognised, and the going concern concept means the machine is not valued on a sale basis.

  1. ARs 5,00,000
  2. BRs 4,40,000
  3. CRs 3,60,000Correct
  4. DRs 4,00,000

Explanation

Under the cost concept, the asset is carried at historical cost less depreciation. Depreciation = 4,00,000/10 = Rs 40,000, so book value = 4,00,000 - 40,000 = Rs 3,60,000. The market value of Rs 5,00,000 is ignored, and adding the Rs 1,00,000 gain or adding depreciation would be wrong.

Did you get it right without looking?

One question tells you little. A timed set on Accounting Principles, Concepts and Conventions shows your real accuracy, how long you take and where you lose marks.

Practise Accounting Principles, Concepts and ConventionsFree diagnostic mock

More Accounting Principles, Concepts and Conventions questions