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Mr. A purchased a machinery costing Rs. 1,00,000 on 1st October, 2011. 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, 2012. 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, 2011....
Cost concept is the correct answer. it should have followed historical cost concept. In this, assets like machinery are to be recorded in books of accounts at their historical cost which means the cost at which it was bought. this concept has many disadvantages but it's a principal of accounts that should be followed strictly.
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Mr. A purchased a machinery costing Rs. 1,00,000 on 1st October, 2011....
The Concept Violated by Mr. A is the Cost Concept.

The cost concept is one of the fundamental accounting concepts that states that assets should be recorded in the books of accounts at their historical cost. This means that the initial cost of acquiring or producing an asset should be recorded as its value in the books, irrespective of any changes in its market value over time.

In the given scenario, Mr. A purchased a machinery costing Rs. 1,00,000 on 1st October, 2011. According to the cost concept, this should be the value recorded in the books for the machinery. However, Mr. A also incurred transportation and installation charges of Rs. 10,000 and Rs. 4,000 respectively, as well as dismantling charges of the old machine amounting to Rs. 10,000. These additional costs should not be included in the value of the machinery as per the cost concept.

Furthermore, the market value of the machine was estimated at Rs. 1,20,000 on 31st March, 2012. While finalizing the annual accounts, Mr. A values the machinery at Rs. 1,20,000 in his books. This violates the cost concept as the market value of an asset should not be considered for recording it in the books. The cost concept emphasizes that assets should be recorded at their historical cost and not their current market value.

By valuing the machinery at Rs. 1,20,000, Mr. A is not adhering to the cost concept and is inflating the value of the machinery in his books. This can lead to misleading financial statements as the actual cost of the machinery is Rs. 1,00,000 and not Rs. 1,20,000.

Therefore, the concept violated by Mr. A is the cost concept, as he included additional charges and valued the machinery at its market value instead of its historical cost.
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Mr. A purchased a machinery costing Rs. 1,00,000 on 1st October, 2011. 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, 2012. 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 conceptCorrect answer is option 'A'. Can you explain this answer?
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Mr. A purchased a machinery costing Rs. 1,00,000 on 1st October, 2011. 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, 2012. 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 conceptCorrect 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, 2011. 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, 2012. 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 conceptCorrect 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, 2011. 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, 2012. 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 conceptCorrect answer is option 'A'. Can you explain this answer?.
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