Question

an unsold machinery appearing in the books at Rs.10000 is exchanged for new machinery of Rs. 10000.The old machinery has been valued at Rs. 1600 for exchange purpose. How to post in ledger​

Answer 1

Answer:

Machine Account to be debited and repairs accounts to be credited

Explanation:

Cash paid for repair of newly purchased old machinery is a capital expenditure and is added to the value of the machinery. This is because the amount spend on repairs adds to the efficiency of the machinery and increases its life.  

When it is debited to repairs account it is an error of principle and reduces the current year profit, so this has to be rectified.  

Since repairs account is wrongly debited it has to be credited to cancel the entry. Whereas machinery account has to be debited to record the original entry. The rectified entry is -

Machinery a/c      Dr 10000

     To Repairs A/c        10000

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