PRC-1 · Chapter 6 · Question 83 of 100
When calculating the initial cost of a manufactured machine, pre-production testing was required. The testing cost Rs. 8,000, and the products made during testing were sold for Rs. 3,000. Under traditional basic accounting methods, what is the net impact on capitalized cost?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Rs. 5,000 is added to the capitalized cost of the machine.
Explanation
Traditionally (and as typically tested in introductory frameworks), the net cost of testing (testing cost minus proceeds from selling test samples) is capitalized. 8,000 - 3,000 = 5,000 capitalized.
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