A machinery was purchased on 1st April, 2005, for Rs. $10, 00, 000$ . Its installation charges were Rs. $1, 00, 000$ . But its market value as on 31st March 2006, was Rs. $13, 00, 000$ . If the company shows the machinery at Rs. $13, 00, 000$ in its B/S, which of the following concepts is not followed by the company?

Cost concept

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Matching concept

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Realisation concept

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Periodicity concept

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Solution

The correct option is A Cost concept
As per the Historical cost concept, an asset is recorded in the books of the accounts at its cost +installation charges i.e., 11,00,000 but here asset is recorded at realizable value i.e., 13,00,000.
Therefore, the historical cost concept is being violated.
Therefore, the asset should be recorded at 11,00,000.

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A machinery was purchased on 1st April, 2005, for Rs. 10,00,000. Its installation charges were Rs. 1,00,000. But its market value as on 31st March 2006, was Rs. 13,00,000. If the company shows the machinery at Rs. 13,00,000 in its B/S, which of the following concepts is not followed by the company?