Question

The concept according to which assets are recorded in the books of accounts at the price at which they are acquired or purchased is called cost concept.

• A. True
• B. False

Answer 1

The correct option is A True

The cost concept requires that all assets are recorded in the book of accounts at their purchase price, which includes cost of acquisition, transportation, installation and making the asset ready to use.

For example, an old plant was purchased for Rs. 50 lakh, which is into the business of manufacturing detergent powder. The following were the other expenses incurred for its installation:

1. Transporting the plant to the factory site- Rs. 10,000

2. Repairs for bringing the plant into running position- Rs. 15,000

3. Installation- Rs. 25,000

The total amount at which the plant will be recorded in the books of account would be the sum of all these, i.e. Rs. 50,50,000.

Hence, the above statement is true.