Purchase cost of plant Rs.5,00,000, Installation cost Rs. 50,000 & Repair cost Rs. 3000 ,Original cost of Plant will be?

Rs.5,00,000

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Rs5,50,000

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Rs.5,53,000

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Rs.5,47,000

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Solution

The correct option is B Rs5,50,000
All expenditure incurred on plant till the asset is ready for put to use, are considered as capital expenditure. This includes installation cost, freight incurred for bringing the asset to the location etc.

Original Cost of the plant will be:
Cost of Plant Rs.500000
Add: Installation Cost Rs. 50000
-------------------
Original Cost of Plant Rs.550000
-------------------

Repair cost of Rs.3000 is a revenue expenditure and to be debited to profit & loss account.

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A Plant was purchased on 1st July 2000 at a cost of Rs. 3,00,000 and Rs. 50,000 were spent on its installation. The depreciation is written off at 15 % at per annum on the straight-line method. The plant was sold for Rs. 1,50,000 on October 1, 2002, and on the same date, a new Plant was installed at the cost of Rs 4,00,000 including purchasing value. The accounts are closed on December 31st every year.

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