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Mr. A purchased a machinery costing Rs. 1,00,000 on 1st October, 2009. Transportation and installation charges were incurred amounting Rs. 10,000 and Rs. 4,000 respectively.Dismantling charges of the old machine in place of which new machine was purchased amounted Rs. 10,000. Market value of the machine was estimated at Rs. 1,20,000 on 31st March 2010. While finalising the annual accounts, A values the machinery at Rs. 1,20,000 in his books.
 
Q. Which of the following concepts was violated by A?
  • a)
    Cost concept
  • b)
    Matching concept
  • c)
    Realisation concept
  • d)
    Periodicity concept.
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
Mr. A purchased a machinery costing Rs. 1,00,000 on 1st October, 2009....
Understanding the Cost Concept Violation
Mr. A's decision to value the machinery at Rs. 1,20,000 in his books violates the cost concept of accounting. Here's a detailed breakdown:
What is the Cost Concept?
- The cost concept states that assets should be recorded at their actual cost incurred to acquire them.
- This includes the purchase price and any additional costs necessary to prepare the asset for use, such as transportation, installation, and dismantling of old machines.
Calculation of Actual Cost
- Purchase Price: Rs. 1,00,000
- Transportation Charges: Rs. 10,000
- Installation Charges: Rs. 4,000
- Dismantling Charges: Rs. 10,000
- Total Cost of Machinery:
Rs. 1,00,000 + Rs. 10,000 + Rs. 4,000 + Rs. 10,000 = Rs. 1,24,000
Violation of the Cost Concept
- Mr. A valued the machinery at its market value (Rs. 1,20,000) instead of its actual cost (Rs. 1,24,000).
- This approach misrepresents the value of the asset in the financial statements and does not adhere to the cost principle.
Consequences of This Violation
- Leads to inaccurate financial reporting, impacting decision-making for stakeholders.
- Can result in financial statement manipulation, which may mislead investors and creditors.
In summary, Mr. A's action is a clear violation of the cost concept by valuing the asset at market value rather than its actual cost incurred. Adhering to this principle ensures transparency and reliability in financial reporting.
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Community Answer
Mr. A purchased a machinery costing Rs. 1,00,000 on 1st October, 2009....
Because, cost concept is valid
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Mr. A purchased a machinery costing Rs. 1,00,000 on 1st October, 2009. Transportation and installation charges were incurred amounting Rs. 10,000 and Rs. 4,000 respectively.Dismantling charges of the old machine in place of which new machine was purchased amounted Rs. 10,000. Market value of the machine was estimated at Rs. 1,20,000 on 31st March 2010. While finalising the annual accounts, A values the machinery at Rs. 1,20,000 in his books.Q. Which of the following concepts was violated by A?a)Cost conceptb)Matching conceptc)Realisation conceptd)Periodicity concept.Correct answer is option 'A'. Can you explain this answer?
Question Description
Mr. A purchased a machinery costing Rs. 1,00,000 on 1st October, 2009. Transportation and installation charges were incurred amounting Rs. 10,000 and Rs. 4,000 respectively.Dismantling charges of the old machine in place of which new machine was purchased amounted Rs. 10,000. Market value of the machine was estimated at Rs. 1,20,000 on 31st March 2010. While finalising the annual accounts, A values the machinery at Rs. 1,20,000 in his books.Q. Which of the following concepts was violated by A?a)Cost conceptb)Matching conceptc)Realisation conceptd)Periodicity concept.Correct answer is option 'A'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Mr. A purchased a machinery costing Rs. 1,00,000 on 1st October, 2009. Transportation and installation charges were incurred amounting Rs. 10,000 and Rs. 4,000 respectively.Dismantling charges of the old machine in place of which new machine was purchased amounted Rs. 10,000. Market value of the machine was estimated at Rs. 1,20,000 on 31st March 2010. While finalising the annual accounts, A values the machinery at Rs. 1,20,000 in his books.Q. Which of the following concepts was violated by A?a)Cost conceptb)Matching conceptc)Realisation conceptd)Periodicity concept.Correct answer is option 'A'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Mr. A purchased a machinery costing Rs. 1,00,000 on 1st October, 2009. Transportation and installation charges were incurred amounting Rs. 10,000 and Rs. 4,000 respectively.Dismantling charges of the old machine in place of which new machine was purchased amounted Rs. 10,000. Market value of the machine was estimated at Rs. 1,20,000 on 31st March 2010. While finalising the annual accounts, A values the machinery at Rs. 1,20,000 in his books.Q. Which of the following concepts was violated by A?a)Cost conceptb)Matching conceptc)Realisation conceptd)Periodicity concept.Correct answer is option 'A'. Can you explain this answer?.
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