X Ltd. has entered into a binding agreement with Beta Ltd. to buy a custom-made machine for 2 lakhs. During the year 2024-25 X Ltd has to change its…

CA Intermediate · Advanced Accounting · PYQS · May 2025
X Ltd. has entered into a binding agreement with Beta Ltd. to buy a custom-made machine for 2 lakhs. During the year 2024-25 X Ltd has to change its method of production due to changes in market trend. Before the delivery of the machine, X Ltd had already changed its method of production and the new method will not require the machine ordered. Now the company decides to scrap it after delivery. The expected scrap value is 25,000. Machine was received on 10th October, 2024 and was scrapped on 15th October, 2024. The correct accounting treatment for above machine in the year 2024-25 is -
(A) Machine A/c to be debited with 2 lakhs and Bank A/c to be credited with 2 lakhs.
(B) Impairment A/c to be debited with - 1.75 lakhs and Bank A/c to be credited with - 1.75 lakhs.
(C) Profit and Loss A/c to be debited with 2 lakhs and Bank A/c to be credited with 2 lakhs.
(D) Profit and Loss A/c to be debited with - 1.75 lakhs and Bank A/c to be credited with - 1.75 lakhs.

Suggested Answer and Working Notes:

Correct Answer: Option (D)

Profit and Loss A/c to be debited with - 1.75 lakhs and Bank A/c to be credited with - 1.75 lakhs.

Topics: Amalgamation of Companies

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