Answered: If a machine cost $20,000 and the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

If a machine cost $20,000 and the company owes the bank $18,000 on a loan for the
purchase of the machine, then how much should be reported for the machine under assets on a balance sheet preparation?

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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As per IAS1, when any asset is purchased by creating any liability then asset needs to be recorded at its full cost and liability needs to be recorded separately. It does not allow to net it off against the asset unless it is allowed under IAS 32 under specific conditions.

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