CAF-8 · Chapter 8 · Question 4 of 10
An auditor discovers that a client has capitalized the entire cost of a major factory roof repair as a non-current asset. The repair only restored the roof to its original condition. What is the impact on the financial statements?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Non-current assets are overstated and expenses are understated.
Explanation
Repairs that only restore an asset's original condition (revenue expenditure) should be expensed. Capitalizing them wrongly inflates assets and hides expenses, overstating profit.
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