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How does the Double Account System handle the replacement of an asset in terms of its cost?
- a)The cost of the new asset is fully expensed in the year of replacement.
- b)The cost of the old asset is written off, and the cost of the new asset is capitalized.
- c)The cost of the old asset remains unchanged, and the cost of the new asset is charged to revenue.
- d)The cost of the old asset is adjusted for inflation, and the cost of the new asset is charged to capital.
Correct answer is option 'C'. Can you explain this answer?
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How does the Double Account System handle the replacement of an asset ...
Under the Double Account System, the cost of the old asset remains unchanged, and the cost of the new asset is charged to the revenue account. This approach helps allocate costs accurately between capital and revenue.
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How does the Double Account System handle the replacement of an asset ...
Understanding the Double Account System
The Double Account System is primarily used in public utilities and large organizations, focusing on capital and revenue accounts. When it comes to replacing an asset, this system has specific treatment for the costs involved.
Replacement of an Asset
- In the context of asset replacement, the Double Account System emphasizes the importance of accurately reflecting both old and new asset costs.
Cost Treatment
- Cost of the old asset remains unchanged: This means that the original cost of the asset is not written off or adjusted when a new asset is acquired. The old asset’s value continues to be recognized on the books.
- Cost of the new asset charged to revenue: Instead of fully expensing the new asset in the year of replacement, the Double Account System allows for the new asset’s cost to be treated in a manner that benefits the organization over its useful life.
Inflation Adjustment
- One of the key principles of this system is that the cost of the old asset may be adjusted for inflation, ensuring that the financial statements reflect the current economic conditions and valuation of the asset. This adjustment helps maintain the asset's relevance in the financial reporting.
Conclusion
- The correct answer to the question is therefore option 'C' because it accurately represents the nuanced approach of the Double Account System, allowing for inflation adjustments while keeping the old asset’s cost intact and appropriately handling the new asset’s cost in relation to revenue. This ensures a more accurate financial representation over time.
The Double Account System is primarily used in public utilities and large organizations, focusing on capital and revenue accounts. When it comes to replacing an asset, this system has specific treatment for the costs involved.
Replacement of an Asset
- In the context of asset replacement, the Double Account System emphasizes the importance of accurately reflecting both old and new asset costs.
Cost Treatment
- Cost of the old asset remains unchanged: This means that the original cost of the asset is not written off or adjusted when a new asset is acquired. The old asset’s value continues to be recognized on the books.
- Cost of the new asset charged to revenue: Instead of fully expensing the new asset in the year of replacement, the Double Account System allows for the new asset’s cost to be treated in a manner that benefits the organization over its useful life.
Inflation Adjustment
- One of the key principles of this system is that the cost of the old asset may be adjusted for inflation, ensuring that the financial statements reflect the current economic conditions and valuation of the asset. This adjustment helps maintain the asset's relevance in the financial reporting.
Conclusion
- The correct answer to the question is therefore option 'C' because it accurately represents the nuanced approach of the Double Account System, allowing for inflation adjustments while keeping the old asset’s cost intact and appropriately handling the new asset’s cost in relation to revenue. This ensures a more accurate financial representation over time.
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How does the Double Account System handle the replacement of an asset in terms of its cost?a)The cost of the new asset is fully expensed in the year of replacement.b)The cost of the old asset is written off, and the cost of the new asset is capitalized.c)The cost of the old asset remains unchanged, and the cost of the new asset is charged to revenue.d)The cost of the old asset is adjusted for inflation, and the cost of the new asset is charged to capital.Correct answer is option 'C'. Can you explain this answer? for B Com 2025 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about How does the Double Account System handle the replacement of an asset in terms of its cost?a)The cost of the new asset is fully expensed in the year of replacement.b)The cost of the old asset is written off, and the cost of the new asset is capitalized.c)The cost of the old asset remains unchanged, and the cost of the new asset is charged to revenue.d)The cost of the old asset is adjusted for inflation, and the cost of the new asset is charged to capital.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for B Com 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for How does the Double Account System handle the replacement of an asset in terms of its cost?a)The cost of the new asset is fully expensed in the year of replacement.b)The cost of the old asset is written off, and the cost of the new asset is capitalized.c)The cost of the old asset remains unchanged, and the cost of the new asset is charged to revenue.d)The cost of the old asset is adjusted for inflation, and the cost of the new asset is charged to capital.Correct answer is option 'C'. Can you explain this answer?.
How does the Double Account System handle the replacement of an asset in terms of its cost?a)The cost of the new asset is fully expensed in the year of replacement.b)The cost of the old asset is written off, and the cost of the new asset is capitalized.c)The cost of the old asset remains unchanged, and the cost of the new asset is charged to revenue.d)The cost of the old asset is adjusted for inflation, and the cost of the new asset is charged to capital.Correct answer is option 'C'. Can you explain this answer? for B Com 2025 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about How does the Double Account System handle the replacement of an asset in terms of its cost?a)The cost of the new asset is fully expensed in the year of replacement.b)The cost of the old asset is written off, and the cost of the new asset is capitalized.c)The cost of the old asset remains unchanged, and the cost of the new asset is charged to revenue.d)The cost of the old asset is adjusted for inflation, and the cost of the new asset is charged to capital.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for B Com 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for How does the Double Account System handle the replacement of an asset in terms of its cost?a)The cost of the new asset is fully expensed in the year of replacement.b)The cost of the old asset is written off, and the cost of the new asset is capitalized.c)The cost of the old asset remains unchanged, and the cost of the new asset is charged to revenue.d)The cost of the old asset is adjusted for inflation, and the cost of the new asset is charged to capital.Correct answer is option 'C'. Can you explain this answer?.
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ample number of questions to practice How does the Double Account System handle the replacement of an asset in terms of its cost?a)The cost of the new asset is fully expensed in the year of replacement.b)The cost of the old asset is written off, and the cost of the new asset is capitalized.c)The cost of the old asset remains unchanged, and the cost of the new asset is charged to revenue.d)The cost of the old asset is adjusted for inflation, and the cost of the new asset is charged to capital.Correct answer is option 'C'. Can you explain this answer? tests, examples and also practice B Com tests.
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