What is the treatment of machinery replacement fund when machinery replacement fund investment appearing on asset side of balance sheet?
Answers
What is the treatment of machinery replacement fund when machinery replacement fund investment appearing on asset side of balance sheet?
hiiii mate here is the answer
Machinery Replacement Fund Investment is a Depreciation Reserve. Such kind of reserves are maintained by a firm out of profits of the firm with the motive to replace an old machinery with new one as and when required. The presence of such reserves helps a firm to acquire a new machine without affecting its present cash position. Hence, this reserve is regarded as an asset of the firm.
It should not be misunderstood as Machinery Replacement Fund Investment to be accumulated profit or loss of a firm. This is because this fund is being created voluntarily out of profits and accordingly, this is not transferred to the Partners’ Capital Accounts. In fact, this fund is shown on the Assets side of the New Balance Sheet of the newly reconstituted firm as it is.
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