rahul the proprietor of m/s RK and co. purchased an air conditioner and installed it at his residence. The payment was made by issuing a cheque from the account of M/S RK and co. the accountant debited the drawing account with the amount where as rahul is of the view that is should be debited to the fixed assets. In your view, who is correct and why?
Hi Darshita,
In this case, the accountant has followed the right disclosure policy. It is because payment for asset has been made out of business account but the asset is installed at proprietor's residence (personal use). Therefore, payment is to be considered as drawings and not purchase of fixed asset.
In this case, the accountant has followed the right disclosure policy. It is because payment for asset has been made out of business account but the asset is installed at proprietor's residence (personal use). Therefore, payment is to be considered as drawings and not purchase of fixed asset.