CMA Foundation · Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions
Mehta Enterprises bought a machine for Rs 2,00,000, paid freight of Rs 10,000 to bring it to the factory, installation charges of Rs 15,000 and Rs 5,000 for repairs of an old machine. At what amount should the new machine be capitalised?
The machine is capitalised at Rs 2,25,000, being the purchase price plus freight and installation needed to make it ready for use. The Rs 5,000 spent on repairing another old machine is revenue expenditure and is charged to profit and loss, not added to the asset.
- ARs 2,00,000
- BRs 2,10,000
- CRs 2,25,000Correct
- DRs 2,30,000
Explanation
Cost of the asset includes purchase price plus freight and installation to bring it to working condition: 2,00,000 + 10,000 + 15,000 = Rs 2,25,000. The Rs 5,000 repair of the old machine is revenue expenditure; adding it gives Rs 2,30,000, which is wrong.
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
- Gupta & Sons paid Rs 30,000 as legal fees: Rs 18,000 for drafting the conveyance deed on purchase of a godown and Rs 12,000 for defending a …
- Which of the following receipts is a capital receipt in the books of a trading firm?
- Sharma Traders paid Rs 40,000 to buy a delivery van and Rs 3,000 as one month's petrol expense for the same van. How should these two paymen…
- Which of the following is the best description of revenue expenditure?
- Gupta Stores, a retailer of electronics, sold goods costing Rs 3,00,000 for Rs 3,60,000. In the same year it sold an old plot of land, which…
- Iyer Stores paid Rs 25,000 as brokerage and legal charges while purchasing a shop building for Rs 8,00,000, and Rs 6,000 as property tax for…