About Lesson
Answer:
Certainly! Let’s account for the dismantling costs of the old machine and recognize the new machine in the balance sheet (Statement of Financial Position):
-
Dismantling Costs of Old Machine:
- The cost of removing the old machine (Rs. 20,000/-) will be capitalized.
- This means we treat it as part of the cost of the new machine.
-
Recognition in the Balance Sheet:
- We’ll recognize the new machine in the balance sheet.
- The entry will include both the cost of the new machine and the capitalized dismantling costs.
Journal Entry:
- Debit: New Machine (Cost of Machine) Account: Rs. 50,000/- (purchase price of the new machine)
- Debit: Dismantling Costs (Capitalized) Account: Rs. 20,000/- (cost of removing the old machine)
- Credit: Cash/Bank Account: Rs. 70,000/- (payment made for the new machine and dismantling costs)
The balance sheet will show:
- Assets:
- New Machine: Rs. 50,000/- (cost of the new machine)
- Accumulated Depreciation (New Machine): Depreciation on the new machine over its useful life
- Total: Rs. 50,000/-
- Liabilities and Equity:
- Cash/Bank: Rs. 70,000/- (payment made)
- Total: Rs. 70,000/-
Remember that the dismantling costs are capitalized because they are directly related to bringing the new machine into operation.
Join the conversation