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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
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B
Suspense A/c to be debited and Installation A/c to be credited
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C
Machine A/c to be debited and Installation A/c to credited
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D
Machine A/c to be debited and Cash A/c to be credited
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Solution

The correct option is D 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

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