Question

Wages paid on installation of machinery is debited to ____________.

• A. Wages Account
• B. Cash Account
• C. Machinery Account
• D. None of the above

Answer 1

The correct option is C Machinery Account

Expenditure incurred upto the date at which the asset becomes ready to commence commercial production (i.e., production intended for sale or capitative consumption ) should bed capitalized and expenditure incurred after this cut off date should be treated as revenue expenditure.

Cost of assets includes :

1. Freight and in-transit Insurance
2. Import duties and other non refundable taxes
3. Cartage and carriage expenses
4. Site preparation costs
5. Installation cost, such as special foundation or plant
6. Professional fees for architects and engineers
7. Expenditure incurred on test runs and experimental production
8. Borrowing cost incurred upto the date at which substantially all the activities necessary to prepare the qualifying asset for its intended use are complete.

Therefore, wages paid on installation of machinery is debited to Machinery Account.