PRC-1 · Chapter 8 · Question 23 of 100
Capital expenditure of Rs. 100,000 on a new building extension was incorrectly treated as revenue expenditure. What is the impact on the financial statements before correction?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Assets are understated, Profit is understated
Explanation
Expensing a capital asset means the asset does not appear on the balance sheet (assets understated) and the full cost is immediately deducted from income (profit understated).
More Correction of Errors MCQs
- Q25An entity incorrectly overstated its closing inventory by Rs. 15,000. What is the impact on the current year's profit?
- Q26An entity incorrectly understated its opening inventory by Rs. 10,000. What is the impact on the current year's profit?
- Q27A business paid Rs. 5,000 to a supplier, Ahmed. It was correctly credited to the cash book but debited to the account of another supplier…
- Q28The purchase day book was overcast by Rs. 2,500. What is the correcting journal entry?
- Q29A credit sale of Rs. 4,800 to Zaid was recorded in the sales day book as Rs. 8,400 and posted to the ledger accordingly. What is the…