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Sunil Enterprises purchased a machine for Rs 2,00,000 from Apex Machines on credit. It also paid Rs 10,000 in cash as installation charges. What is the correct journal entry?

Debit Machinery A/c Rs 2,10,000, credit Apex Machines Rs 2,00,000 and Cash Rs 10,000. Installation cost is a capital expenditure that forms part of the asset's cost, so it is added to the machine's value rather than expensed.

  1. AMachinery A/c Dr. 2,10,000; to Apex Machines A/c 2,00,000; to Cash A/c 10,000Correct
  2. BMachinery A/c Dr. 2,00,000; Installation Expenses A/c Dr. 10,000; to Apex Machines A/c 2,10,000
  3. CPurchases A/c Dr. 2,00,000; Machinery A/c Dr. 10,000; to Apex Machines A/c 2,00,000; to Cash A/c 10,000
  4. DMachinery A/c Dr. 2,10,000; to Apex Machines A/c 2,10,000

Explanation

Installation charges are necessary to bring the machine into use, so they are capitalised: Machinery = 2,00,000 + 10,000 = 2,10,000. Credits are the supplier for 2,00,000 and cash for 10,000, totalling 2,10,000. Treating installation as an expense or buying machinery through Purchases is wrong.

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