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Question
Rs.10,000 paid in cash for repair of a purchased old machine,Should be debited to :
Rs.10,000 paid in cash for repair of a purchased old machine,Should be debited to :
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Solution
The correct option is D Machine Account
When amount is spent on repairs of existing fixed assets, it is treated as revenue expenditure and is debited to repairs account. But when amount is spent on repair of old machine purchased, it is treated as capital expenditure and is added to the value of the machinery or asset. This is because amount spent on repair of old machinery purchased enhances the efficiency of the asset which is assumed to be used for a long period of time.The entry for this entry is -Machinery A/c Dr 10000 To Cash A/c 10000
When amount is spent on repairs of existing fixed assets, it is treated as revenue expenditure and is debited to repairs account. But when amount is spent on repair of old machine purchased, it is treated as capital expenditure and is added to the value of the machinery or asset. This is because amount spent on repair of old machinery purchased enhances the efficiency of the asset which is assumed to be used for a long period of time.
The entry for this entry is -
Machinery A/c Dr 10000
To Cash A/c 10000
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