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Cost of Asset

Cost of an asset includes invoice price and other costs, which are necessary to put the asset in use or working condition. Besides the purchase price, it includes freight and transportation cost, transit insurance, installation cost, registration cost, commission paid on purchase of asset adds items such as software, etc.

In case of purchase of a second hand asset it includes initial repair cost to put the asset in workable condition.

According to Accounting Standand-6 of ICAI, cost of a fixed asset is

“The total cost spent in connection with its acquisition, installation and commissioning as well as for addition or improvement of the depreciable asset”.

For example, a photocopy machine is purchased for Rs. 50,000 and Rs. 5,000 is spent on its transportation and installation. In this case the original cost of the machine is Rs. 55,000 (i.e. Rs. 50,000 + Rs.5, 000) which will be written off as depreciation over the useful life of the machine.

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