Accounting · Capital and Revenue Expenditure
A bank bought a building for 10 Crores. Over five years, it spent 2 Crores on annual repairs and 1 Crore on a new central air-conditioning system. Following an economic downturn, the market value of the building drops to 8 Crores. The bank applies the Straight Line Method of depreciation at a 10% annual rate. How should these transactions be presented in the financial statements under standard accounting practices?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The 1 Crore spent on the AC system should be treated as a revenue receipt.
- 2The building must be written down to 8 Crores immediately as a revenue expenditure.
- 3The building should be shown at its carrying value (Original Cost + AC Cost - Accumulated Depreciation), and annual repairs must remain expensed in the respective years' P&L accounts.✓
- 4The building should be shown at 11 Crores, and all repair costs should be capitalized to prevent a loss.
Correct answer
The building should be shown at its carrying value (Original Cost + AC Cost - Accumulated Depreciation), and annual repairs must remain expensed in the respective years' P&L accounts.
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