Accounting · Capital and Revenue Expenditure
A pharmaceutical company is setting up a new Research and Development (R&D) wing. It incurs Rs 50,00,000 on constructing the building and Rs 30,00,000 on sophisticated laboratory equipment. During the year, the company spends Rs 10,00,000 on salaries for researchers working on a 'New Molecule' project. Halfway through the year, the project is abandoned as it failed to meet clinical standards. The company also pays Rs 2,00,000 for the patent application of a different successful formula and Rs 1,00,000 on annual insurance for the R&D wing. To procure the specialized equipment from Germany, Rs 3,00,000 was paid as freight and Rs 2,00,000 for a technician to install it. What is the total Capital Expenditure for the year, and how should the abandoned project's cost be treated?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Capital Rs 87,00,000; Abandoned project cost is capitalized as 'Deferred Revenue.'
- 2Capital Rs 85,00,000; Abandoned project cost is written off to the P&L.
- 3Capital Rs 87,00,000; Abandoned project cost is written off to the P&L.✓
- 4Capital Rs 90,00,000; Abandoned project cost is capitalized as 'Research Loss.'
Correct answer
Capital Rs 87,00,000; Abandoned project cost is written off to the P&L.
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