PRC-1 · Chapter 6 · Question 40 of 100
During the pre-production testing phase of a new machine, some sample products are produced and sold for Rs. 5,000. How should these proceeds generally be treated under basic accounting rules for asset cost determination?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Deduct the Rs. 5,000 from the capital cost of the machine (traditional approach) or recognize in P&L depending on specific standard updates.
Explanation
Traditionally, the net proceeds from selling items produced while bringing the asset to its intended location/condition are deducted from the testing costs capitalized.
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