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CS Executive · Corporate Accounting and Financial Management · Introduction to Corporate Accounting

Mehta Ltd. bought a machine for ₹6,00,000 on 1 April. The owner's son, a director, remarked that its market value is now ₹7,50,000 and the books should show this. Which accounting concept supports continuing to record the machine at ₹6,00,000 (less depreciation)?

The cost or historical cost concept supports recording the machine at ₹6,00,000 less depreciation. Assets are recorded at acquisition cost because it is objective and verifiable, so an unrealised rise in market value is not entered in the books.

  1. ACost concept (historical cost), supported by objectivityCorrect
  2. BDual aspect concept
  3. CAccrual concept
  4. DMoney measurement concept

Explanation

Assets are recorded at the cost of acquisition, which is verifiable and objective, and are not revalued upward for market opinions. Dual aspect concerns the two-sided effect of transactions, accrual concerns timing of revenue and expenses, and money measurement concerns recording only monetary items.

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