A machine is bought for Rs 400,000. Freight is Rs 15,000, installation is Rs 25,000 and the first year’s insurance is Rs 8,000. What amount should be capitalised as the cost of the machine?
Correct answer A. Rs 440,000
Explanation
Freight and installation bring the machine into use and are capitalised: 400,000 + 15,000 + 25,000 = Rs 440,000. Annual insurance is a revenue expense.
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