How does the purchase of a new machine affect the profit and loss statement?

Purchase of a new machine will affect the profit and loss statement because of the:

 

1. Depreciation Charges

 

2. Minor Repairs & Maintenance

 

Purchase of a new machine affects in two ways

-That will reduce the annual profit by increasing the expenses on fixed assets

-But in the balance sheet Our fixed assets will be increased.

The purchase of a new machine that will be used in a business will affect theprofit and loss statement, or income statement, when the machine is placed into service. At that point,depreciation expensewill begin and there will likely be other expenses such as wages, maintenance, electricity, and so on. Since the income statement reports only the expenses that match therevenuesduring theaccounting period, the depreciation expense might be very small in the first accounting period compared to the amount spent for the machine. For example, if the machine is purchasedhalf wayinto theaccounting year and its cost was $300,000,thedepreciationfor that first accounting period might be only $15,000—assuming it has a10 year life andnosalvage value. In the next accounting period the depreciation expense will be $30,000 under the straight-line method. If the machine is used by a manufacturer, the depreciation, electricity, and maintenance of the machine will be recorded asmanufacturing overhead. This overhead is then assigned to the products and will be held in inventory until the goods are sold. When the products are sold, these overhead costs will be reported on the income statement aspart of the cost of goods sold.

Purchase of machines under fixed asset, it reflects in balance sheet. Only depreciation charges only affect profit and loss statement.

as the purchase of new machine is a capital expenditure it would not directly affect the profit and loss statement however the depreciation charge in respect of new machine will reduce the profit or increase the loss .

By  making provision for depreciation also will effect the P & L a/c .