Mr. A purchased a machinery costing Rs. $1, 00, 000$ on $1^{s t}$ October, $2005$ . Transportation and installation charges were incurred amounting Rs. $10, 000$ and Rs. $4, 000$ respectively. Dismantling charges of the old machine in place of which new machine was purchased amounted Rs. $10, 000$ . Market value of the machine was estimated at Rs. $1, 20, 000$ on $31^{s t}$ March $2006$ . While finalising the annual accounts, A values the machinery at Rs. $1, 20, 000$ in his books.
Which of the following concepts are violated by A?

Cost concept

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Matching concept

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Realisation concept

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Periodically concept

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Solution

The correct option is A Cost concept
As per Cost Concept, an asset is always recorded at its historical cost.
Here, Historical cost includes
Cost of Machinery = 100,000
Transportation Charges = 10000
Installation Charges = 4000
Dismantling Charges = 10,000
Total Cost = 124,000

However, here it is recorded at the market value which implies that the Cost concept is being violated

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