Question

Rs.10,000 Paid in cash for installation of a new machine were debited to Installation Expenses Account While Passing a rectifying entry :

• A. Cash A/c to be debited and Installation Expenses A/c to be credited
• B. Suspense A/c to be debited and Installation A/c to be credited
• C. Machine A/c to be debited and Installation A/c to credited
• D. Machine A/c to be debited and Cash A/c to be credited

Answer 1

Answer: (C)

Machine A/c to be debited and Installation A/c to credited

Installation expense is the expense incurred to get the asset in place and ready to use. This is a capital expenditure and is added to the value of the machinery. In this case, the installation expense account is debited instead of the machinery account as it is a capital expenditure.

In the rectification since the installation account is wrongly debited has to be credited to cancel the original entry, and the machinery account is to be debited to show the correct entry.

The rectification entry is -

Machinery A/c Dr 10000

To Installation Expense A/c 10000