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

Mehta Traders bought machinery for Rs 4,00,000 and incurred Rs 20,000 on transport and Rs 30,000 on installation to make it ready for use. Under AS 10 (Property, Plant and Equipment) as taught at this level, at what amount is the machinery initially recorded?

The machinery is recorded at Rs 4,50,000. Cost includes the purchase price of Rs 4,00,000 plus transport of Rs 20,000 and installation of Rs 30,000, because both are directly attributable to bringing the asset to its working condition and location.

  1. ARs 4,00,000
  2. BRs 4,20,000
  3. CRs 4,50,000Correct
  4. DRs 4,30,000

Explanation

Initial cost includes purchase price plus directly attributable costs of bringing the asset to working condition: 4,00,000 + 20,000 + 30,000 = 4,50,000. Rs 4,20,000 omits installation, and Rs 4,30,000 omits transport.

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