Question

A manufacturing company spent the following amounts on the import and installation of a machine:
Freight = $Rs.50,000$
Insurance premium = $Rs.1,050$
Replacement of a part damaged in transit not covered under insurance policy = $Rs.6,000$
Based on the above data, capital expenditure would be _____________.

• A. $Rs.50,000$
• B. $Rs.51,050$
• C. $Rs.62,050$
• D. $Rs.51,000$

Answer 1

Answer: (B)

$Rs.51,050$

All incidental expenses incurred for purchase of an assets till its installation has to be debited as capital expenditure. Accordingly the below items are to be considered as cost of machine:

Freight Rs.50000

Insurance Premium Rs. 1050

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Cost of machine Rs.51050

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Rs.6000 spent on replacement of a part damaged in transit is an item of repair & maintenance cost.