Question

A company purchases machinery for ₹10 lakhs and incurs ₹1 lakh on its installation. The accountant records the total ₹11 lakhs under the fixed asset head. However, a junior accountant argues that the installation should be treated as a revenue expense. Considering the nature of the transaction and accounting principles, how should this cost be classified?

A As a capital expenditure because it enhances the future benefit
B As a revenue expenditure because it's incurred after purchase
C As a deferred revenue expense to be written off over time
D As a non-operating expenditure, not to be recorded in the books
E As part of the cost of the asset, capitalized and depreciated over its useful life
Practice Next

Hey! Ask a query