Economics · Accounting Principles
A manufacturing firm spends 500,000 on the acquisition of a second hand machine, 50,000 on its transport to the factory, 30,000 on specialized foundation work for installation, and 20,000 on repairs to make it functional for the first time. Subsequently, it spends 15,000 on annual maintenance. Which of the following correctly classifies the initial 600,000 expenditure and the subsequent 15,000 expenditure in accordance with standard accounting principles?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Both expenditures are treated as revenue expenditures to avail higher tax benefits in the current financial year.
- 2Both expenditures are treated as capital expenditures to maximize the asset value on the balance sheet for credit appraisal.
- 3The 600,000 is a capital expenditure as it brings the asset to its working condition, and the 15,000 is a revenue expenditure.✓
- 4The 600,000 is a revenue expenditure because it involves a second hand asset, and the 15,000 is a capital expenditure.
Correct answer
The 600,000 is a capital expenditure as it brings the asset to its working condition, and the 15,000 is a revenue expenditure.
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