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Purchased machinery for cash 150000 and paid 2000 on its installation?
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Purchased machinery for cash 150000 and paid 2000 on its installation?
Purchase of Machinery for Cash
When a business purchases machinery, it is usually a significant investment that requires careful consideration. In this case, the business has purchased machinery for cash for a total of 150000. Additionally, they have paid 2000 for its installation. Let's break down what this means for the business.
Cost of Machinery
The cost of the machinery is the amount that the business paid to acquire it. In this case, the cost of the machinery is 150000. This cost is a capital expenditure, which means that it is not an expense that can be deducted from the business's income for tax purposes. Instead, the cost of the machinery will be capitalized and depreciated over its useful life.
Installation Costs
In addition to the cost of the machinery, the business has also paid 2000 for its installation. This is an expense that can be deducted from the business's income for tax purposes since it is a necessary cost to put the machinery into service.
Impact on Financial Statements
The purchase of the machinery and its installation will have an impact on the business's financial statements. Specifically:
- The balance sheet will show an increase in the machinery account for 150000.
- The income statement will show a decrease in the net income for the amount of the installation cost, which is 2000.
- The cash flow statement will show a decrease in cash for the total amount paid, which is 152000.
Useful Life and Depreciation
The machinery that the business has purchased will have a useful life. This is the amount of time over which the machinery will be used in the business before it needs to be replaced. The useful life of machinery depends on factors such as its type, quality, and how frequently it is used.
Since the machinery is a capital expenditure, it will be depreciated over its useful life. Depreciation is an accounting method that spreads the cost of an asset over its useful life. This means that instead of deducting the entire cost of the machinery in the year it was purchased, the cost will be deducted over several years. This allows the business to match the cost of the machinery with the revenue it generates over its useful life.
Conclusion
The purchase of machinery for cash is a significant investment for a business. In addition to the cost of the machinery, there may be other costs such as installation, which must be accounted for. The impact of the purchase on the business's financial statements must also be considered, including its effect on the balance sheet, income statement, and cash flow statement. Finally, the useful life of the machinery and its depreciation must be calculated to determine how the cost will be spread over several years.
Community Answer
Purchased machinery for cash 150000 and paid 2000 on its installation?
Machinery will be debited with 152000 and cash will be credited with 152000 as cash is paid 152000 by firm and machinery is also credited with full amount because all the expenses incurred on purchase of asset will be debited to asset a/c till it is to be taken in the working condition
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Purchased machinery for cash 150000 and paid 2000 on its installation? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Purchased machinery for cash 150000 and paid 2000 on its installation? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Purchased machinery for cash 150000 and paid 2000 on its installation?.
Purchased machinery for cash 150000 and paid 2000 on its installation? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Purchased machinery for cash 150000 and paid 2000 on its installation? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Purchased machinery for cash 150000 and paid 2000 on its installation?.
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