PRC-1 · Chapter 10 · Question 26 of 100
A business paid Rs. 15,000 for the installation of a new machine but mistakenly recorded it as a repair expense. When this error is corrected at year-end, what will be the impact on Net Profit (ignoring depreciation)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Net profit will increase by Rs. 15,000.
Explanation
Installation costs should be capitalized (added to the asset). By expensing it, profit was understated by 15,000. Correcting the error removes the 15,000 expense, thereby increasing net profit.
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