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Revenue Expenditure wrongly recorded as Capital Expenditure will result in:
- a)Overstatement of net profit and understatement of assets
- b)Overstatement of net profit and overstatement of assets
- c)Understatement of net profit and overstatement of assets
- d)Understatement of net profit and understatement of assets
Correct answer is option 'B'. Can you explain this answer?
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Verified Answer
Revenue Expenditure wrongly recorded as Capital Expenditure will resul...
Revenue Expenditure are recorded as expense in P/L A/c whereas Capital Expenditure is shown as addition to assets. Thus, when revenue expenditure is wrongly recorded as Capital Expenditure, the net profit is overstated and assets are also overstated.
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Revenue Expenditure wrongly recorded as Capital Expenditure will resul...
Explanation:
When revenue expenditure is wrongly recorded as capital expenditure, it leads to an overstatement of net profit and overstatement of assets. This is because revenue expenditure is incurred for the day-to-day operations of the business and is charged to the profit and loss account. On the other hand, capital expenditure is incurred for acquiring long-term assets or improving the existing ones and is charged to the balance sheet.
Effects of recording revenue expenditure as capital expenditure:
Overstatement of net profit: If revenue expenditure is capitalized instead of being charged to the profit and loss account, it will artificially inflate the net profit of the company. This is because capital expenditure is not charged to the profit and loss account but is shown on the balance sheet as an asset. As a result, the net profit will be higher than it actually is.
Overstatement of assets: The capitalization of revenue expenditure will also lead to an overstatement of assets. This is because the expenditure will be shown as an asset on the balance sheet, which will inflate the total value of assets. This, in turn, will lead to an overstatement of the financial position of the company.
Conclusion:
Hence, it is important to record revenue expenditure correctly in the profit and loss account and capital expenditure in the balance sheet to ensure that the financial statements show a true and fair view of the company's financial position.
When revenue expenditure is wrongly recorded as capital expenditure, it leads to an overstatement of net profit and overstatement of assets. This is because revenue expenditure is incurred for the day-to-day operations of the business and is charged to the profit and loss account. On the other hand, capital expenditure is incurred for acquiring long-term assets or improving the existing ones and is charged to the balance sheet.
Effects of recording revenue expenditure as capital expenditure:
Overstatement of net profit: If revenue expenditure is capitalized instead of being charged to the profit and loss account, it will artificially inflate the net profit of the company. This is because capital expenditure is not charged to the profit and loss account but is shown on the balance sheet as an asset. As a result, the net profit will be higher than it actually is.
Overstatement of assets: The capitalization of revenue expenditure will also lead to an overstatement of assets. This is because the expenditure will be shown as an asset on the balance sheet, which will inflate the total value of assets. This, in turn, will lead to an overstatement of the financial position of the company.
Conclusion:
Hence, it is important to record revenue expenditure correctly in the profit and loss account and capital expenditure in the balance sheet to ensure that the financial statements show a true and fair view of the company's financial position.
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Community Answer
Revenue Expenditure wrongly recorded as Capital Expenditure will resul...
The revenue expenditure is wrongly recorded as a capital expenditure which means an expense which should be present on the debit side of the profit and loss account is absent because of which the net profit will increase and this leads to over statement of net profit and as it was recorded as a capital expenditure which is nothing but an asset leads to an over statement of assets hence option b correct answer
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Revenue Expenditure wrongly recorded as Capital Expenditure will result in:a)Overstatement of net profit and understatement of assetsb)Overstatement of net profit and overstatement of assetsc)Understatement of net profit and overstatement of assetsd)Understatement of net profit and understatement of assetsCorrect answer is option 'B'. Can you explain this answer?
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Revenue Expenditure wrongly recorded as Capital Expenditure will result in:a)Overstatement of net profit and understatement of assetsb)Overstatement of net profit and overstatement of assetsc)Understatement of net profit and overstatement of assetsd)Understatement of net profit and understatement of assetsCorrect answer is option 'B'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Revenue Expenditure wrongly recorded as Capital Expenditure will result in:a)Overstatement of net profit and understatement of assetsb)Overstatement of net profit and overstatement of assetsc)Understatement of net profit and overstatement of assetsd)Understatement of net profit and understatement of assetsCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Revenue Expenditure wrongly recorded as Capital Expenditure will result in:a)Overstatement of net profit and understatement of assetsb)Overstatement of net profit and overstatement of assetsc)Understatement of net profit and overstatement of assetsd)Understatement of net profit and understatement of assetsCorrect answer is option 'B'. Can you explain this answer?.
Revenue Expenditure wrongly recorded as Capital Expenditure will result in:a)Overstatement of net profit and understatement of assetsb)Overstatement of net profit and overstatement of assetsc)Understatement of net profit and overstatement of assetsd)Understatement of net profit and understatement of assetsCorrect answer is option 'B'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Revenue Expenditure wrongly recorded as Capital Expenditure will result in:a)Overstatement of net profit and understatement of assetsb)Overstatement of net profit and overstatement of assetsc)Understatement of net profit and overstatement of assetsd)Understatement of net profit and understatement of assetsCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Revenue Expenditure wrongly recorded as Capital Expenditure will result in:a)Overstatement of net profit and understatement of assetsb)Overstatement of net profit and overstatement of assetsc)Understatement of net profit and overstatement of assetsd)Understatement of net profit and understatement of assetsCorrect answer is option 'B'. Can you explain this answer?.
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