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CMA Foundation · Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions

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 transport to the factory and Rs 8,000 as the first-year annual maintenance contract charge. What amount should be debited to the Machinery account?

Machinery account is debited with Rs 1,67,000, being the purchase price of Rs 1,50,000 plus Rs 12,000 repairs to make it workable and Rs 5,000 transport. The Rs 8,000 annual maintenance charge is a recurring revenue expense and is not part of the asset's cost.

  1. ARs 1,67,000Correct
  2. BRs 1,55,000
  3. CRs 1,75,000
  4. DRs 1,62,000

Explanation

Cost of the machine includes the price, repairs to make it workable and transport: 1,50,000 + 12,000 + 5,000 = Rs 1,67,000. The maintenance contract of Rs 8,000 is a recurring revenue expense. Rs 1,75,000 wrongly includes it, and Rs 1,55,000 omits the initial repairs.

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