Hi, I have a question and I hope anyone could answer it:
When a Proprietor purchased furniture at Rs. 10,000 for business purposes, he paid transportation and loading charges of Rs. 1000 for bringing the furniture to the location of business premises. State whether it is possible to add the transportation and loading charges to the purchased price of furniture? What is the underlying principle behind it?
Answer:
1. Yes, it is possible to add transportation and loading charges to the purchased price of furniture.
2. “Historical cost principle” – This principle requires that all transactions should be recorded at their acquisition cost. The cost of acquisition refers to the cost of purchasing the asset and expenses incurred in bringing the assets to the intended condition and location of use.