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CA Intermediate · Advanced Accounting · AS 10 Property, Plant and Equipment

Sundaram Textiles Ltd. bought a machine for Rs 8,00,000 (list price) and was allowed a trade discount of Rs 50,000. It also paid Rs 40,000 freight inward, Rs 30,000 for installation, Rs 20,000 as staff training cost for operating the machine, and Rs 10,000 as general administration overheads allocated to the purchase. What is the cost of the machine to be capitalised under AS 10?

The machine is capitalised at Rs 8,20,000. Cost is the list price less trade discount, plus freight and installation, which are directly attributable. Staff training and general administration overheads are not capitalised under AS 10, so they are charged to the profit and loss statement.

  1. ARs 8,20,000Correct
  2. BRs 8,40,000
  3. CRs 8,50,000
  4. DRs 8,30,000

Explanation

Cost = list price 8,00,000 - trade discount 50,000 + freight 40,000 + installation 30,000 = Rs 8,20,000. Staff training and general administration overheads are not directly attributable costs, so they are expensed. Rs 8,40,000 wrongly includes the training cost, and Rs 8,50,000 includes both training and overheads.

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