Question

Mr. Sumit, a proprietor, purchased Machinery( Fixed Asset) for Rs. 10,00,000 on 1st July 2020, at the end of the financial year the market value of machinery came down to Rs. 7,00,000 and Sumit recorded it at Rs. 7,00,000 and showed a loss of Rs. 3,00,000. Which Accounting Concept is being violated here: *


Cost concept

Separate entity concept

Money measurement concept

Revenue recognition concept

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Answer 1

Answer:

separate entity concept

Answer 2

The concept being violated here is the Cost Concept.

• The cost principle typically requires that the key assets, potential liabilities, and equity investments be carefully recorded at their original cost on financial records.
• It properly records key assets at their respective cash amounts at the proper time they were typically purchased.
• For economic changes in market value or inflation, the considerable amount of the asset reported will not be increased or changed to adequately reflect any depreciation.
• Since, the machine was purchased at 10,00,000 and recorded at 7,00,000 the cost concept is being violated here.