A textile plant modernized its facility by replacing old machinery with advanced looms costing ₹8,00,00,000. Flooring reinforcement cost ₹40,00,000. During installation, uninsured short-circuit fire damage of ₹10,00,000 occurred. Trial run costs were ₹5,00,000, and trial run fabric sales yielded ₹1,50,000. What is the most accurate accounting treatment for the fire damage and the trial run proceeds?

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Economics · Capital and Revenue Expenditure

Verified Solution4 OptionsUpdated: October 2026👁️1 View

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Correct answer

Fire damage is treated as an extraordinary revenue loss (P&L), while trial run proceeds are deducted from the capitalized cost of the looms.

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Answer 1

Both fire damage and trial run proceeds are capitalized to the cost of the looms.

Answer 2

Fire damage is treated as an extraordinary revenue loss (P&L), while trial run proceeds are deducted from the capitalized cost of the looms.

Answer 3

Both fire damage and trial run proceeds are treated as revenue items in the Profit and Loss Account.

Answer 4

Fire damage is capitalized as part of the 'Installation Cost,' and trial run proceeds are shown as 'Other Income' in the P&L.

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