60.1K

Verified Solution

Link Copied!

Q # 1

Distinguish between capital expenditures and revenue expenditures

Q # 2

National company acquired a machine on January 01, 2005 at a list price of Rs. 565, 000 with a trade discount of 2%. The terms of payment was 3/10, n/30, including a sales tax of 4%. The Co. availed the concession period of payment. The Co. also incurred the following expenses:

Transportation charges Rs. 15,000

Installation and testing charges Rs. 20,000

Package charges Rs. 5,000

Insurance in transit Rs. 25,000

The company also paid Rs. 3,500 as a fine on account of negligent driving by one of the companys driver while transporting the machinery. During installation work of the machinery, adjacent machinery was damaged and repair cost paid Rs. 9,000. License fee paid for the operation of the machinery Rs. 30,000 for the current year. An amount of Rs. 24,400 was paid as fire insurance premium on a three years policy.

It is estimated that the machinery has a scrap value of Rs. 100,000 at the end of its estimated service life of 8 years. On December 31^st, 2009 machine was sold at Rs. 150,000.

Required

1. Compute the cost and gain or loss on sale of machine.
2. Prepare journal entries in proper form to record the purchase of machine and disposal of machine

Note: Entries without computation will not be accepted

Answer & Explanation Solved by verified expert

See Answer