Accounting · Capital and Revenue Expenditure
A manufacturing firm based in Bengaluru spends 20 lakh rupees on the overhaul of its second-hand machinery purchased in January 2025 to bring it to working condition and another 2 lakh rupees on a specialized technician fee for the installation of the machine. Subsequently, in June 2025, the firm spends 50,000 rupees on grease and oiling for the same machine and 1 lakh rupees on a legal suit to defend the title of the land where the factory is built. Identify the correct accounting treatment for these four distinct payments.
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Only the overhaul of 20 lakh rupees is capital expenditure, and all other three items are revenue expenditures as they are administrative or maintenance in nature.
- 2Overhaul of 20 lakh rupees and legal fees of 1 lakh rupees are capital expenditures, while installation fee of 2 lakh rupees and oiling of 50,000 rupees are revenue expenditures.
- 3All four items are capital expenditures because they are all related to the long-term operational capacity of the factory premises.
- 4Overhaul of 20 lakh rupees and installation fee of 2 lakh rupees are capital expenditures, whereas oiling of 50,000 rupees and legal fees of 1 lakh rupees are revenue expenditures.✓
Correct answer
Overhaul of 20 lakh rupees and installation fee of 2 lakh rupees are capital expenditures, whereas oiling of 50,000 rupees and legal fees of 1 lakh rupees are revenue expenditures.
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