A payment for routine repairs is incorrectly recorded as the purchase of a new asset. This error mainly causes:
Correct answer: B. Assets and current profit to be overstated
- A. Assets and current profit to be understated
- B. Assets and current profit to be overstated
- C. Liabilities and current profit to be understated
- D. Capital and liabilities to be overstated
Explanation
Routine repairs are revenue expenditure and should be charged as an expense. Capitalising them overstates assets and avoids the immediate expense, so current profit is also overstated.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
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.
Practise Accounting Principles
351 free Accounting Principles MCQs from Accounting, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Accounting questions like this
Accounting is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Accounting Principles questions
Which item is normally classified as a capital expenditure?
Which accounting treatment follows the business entity concept?
The going concern assumption means that a business is expected to:
If a business has assets of Rs. 850,000 and liabilities of Rs. 320,000, what is the owner's equity?
A business owner introduces cash into the business as additional investment. Which effect is recorded?
In a double-entry system, which account is credited when goods are sold for cash?