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When a new machine is purchased, we have to determine the 2 aspects:-
1. Whether the life of the machine, if it has long life say more than 1 year.
2. The value of the machine.
In the 1st instance only the depreciated value of the machine is taken in P&L A/c.
If the life is less than a year than we have to taken the full value of the machine in P&L A/c.
In the 2nd instance if the machine value is less Eg:- Grinders cost is Aed. 500/- though may be valuable for 2 or more years, we can take it in P&L A/c.
When a machinery is purchased there will be no effect on profit and loss statement. But if it is depreciated an entry will be written on debit side.
the purchase of a machine will usually be considered as the purchase of a fixed asset.
the profit & loss account will be affected when the depreciation of the machine will be expesed.
The purchase of a new machine that will be used in a business will affect the profit and loss statement, or income statement, when the machine is placed into service. At that point, depreciation expense will begin and there will likely be other expenses such as wages, maintenance, electricity, and so on.
Purchase of a new machine will affect the profit and loss statement because of the these two operating expenses such as Depreciation Expense and Repairs & Maintenance expense
it is have direct effect , but the relevant cost and expense like electricity and maintenance , deprecation which are so familiar to recorded in profit and loss statements
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