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When a firm bought a non-current asset, for example a car, and paid full price $50 000, the accounts would not record the $50 000 as expenses in the year
When a firm bought a non-current asset, for example a car, and paid full price $50 000, the accounts would not record the $50 000 as expenses in the year. How do the accounts record the expenses of using the car, and how is it shown in the income statement?
Expert Solution
Answer is as follows:
Non current assets are capitalised in the books of accounts when they are bought. The amount of $50000 is shown as car under the head non current assets in the balance sheet. It would not be expensed in the year of purchase in income statement.
And every year the amount of non current assets is depreciated over the life of an asset on the reasonable basis employed by the firm.
In the income statement the depreciation on car is charged as an expense every year, over the life of an asset.
And other expenses relating to operation of car like fuel, repairs and other expenses are expensed in the income statement as and when they are incurred.
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