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CBSE Class 11-commerce Answered

PQR company purchased machinery costing Rs. 200,000 which will last for 8 years. How much cost should the company treat as an expense?
Asked by Topperlearning User | 09 Jun, 2016, 12:14: PM
answered-by-expert Expert Answer

According to going concern concept, business assumes that it will run its operation for a longer period of time and transactions are recorded from this point of view. This business would not be liquidated in the foreseeable future.

Here, one eighth of the cost should be treated as an expense. (i.e. Rs. 200000*1/8= Rs. 25000) for an accounting year as it is assumed that business is going to run for more 8 years.

Answered by | 09 Jun, 2016, 02:14: PM
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