Question

Pulling down an old structure rs 750and rebuilding of 10500

Answer 1

Explanation:

If accountant treat revenue expenditure as capital expenditure, then following effects took place in financial statements Effect in Income Statement: Due to understatement of revenue expenditure, net profit will be overstated.

Answer 2

Answer:

Pulling down an old structure Rs.750 and rebuilding of Rs.10500 are both classified as capital expenditure.

Explanation:

Capital expenditure is the expenditure incurred on the construction, repairs, renovation of the existing asset or building of a new capital asset.

Capital asset is the asset which is going to yield economic benefits over a period of life i.e. more than 12 months.

Journal Entry:

Building A/c ---------------Dr                   11250    

       To Pulling Down expenses A/c                        750

       To Building WIP       A/c                                 10500  

(Being expenses incurred on construction of new building)