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Standard XII

Accountancy

Profitablility Ratio

The cost of m...

Question

The cost of machinery purchased on 10th April 2005, is Rs. 10,00,000. Its market value as of 31st March 2006, is Rs. 12,00,000. As of 31st March 2006, if the company values the machinery at Rs. 12,00,000, which of the following valuation principles is being violated?

Historical cost

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Present value

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Realizable value

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Current cost

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Solution

The correct option is A Historical cost
As per the Historical cost concept, an asset should be recorded in the books of the accounts at its purchase price or cost i.e., 10,00,000 but here asset is recorded at realizable value i.e., 12,00,000.
Therefore, the historical cost concept is being violated.

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The cost of machinery purchased on 10th April 2005, is Rs. 10,00,000. Its market value as of 31st March 2006, is Rs. 12,00,000. As of 31st March 2006, if the company values the machinery at Rs. 12,00,000, which of the following valuation principles is being violated?

The correct option is A Historical costAs per the Historical cost concept, an asset should be recorded in the books of the accounts at its purchase price or cost i.e., 10,00,000 but here asset is recorded at realizable value i.e., 12,00,000.Therefore, the historical cost concept is being violated.