A company buys a machine and pays freight and installation charges before putting it into use. These charges are generally treated as:
Correct answer: A. Capital expenditure
- A. Capital expenditure
- B. Revenue expenditure
- C. Deferred income
- D. A contingent liability
Explanation
Freight and installation are necessary to bring the machine to its working condition. They are therefore included in the machine's capital cost rather than charged immediately as a period expense.
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About Accounting Principles
Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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