Question

Rs.10,000 paid in cash for repairs of newly purchased old machine were debited to repairs Amount. Pass the rectification entry :

• A. Cash Account to be debited and repairs accounted to be credited
• B. Suspense Account debited and repairs account to be credited
• C. Machine Account to be debited and repairs accounts to be credited
• D. Machine Account to be debited and cash account to be credited

Answer 1

Answer: (C)

Machine Account to be debited and repairs accounts to be credited

Cash paid for repair of newly purchased old machinery is a capital expenditure and is added to the value of the machinery. This is because the amount spend on repairs adds to the efficiency of the machinery and increases its life.

When it is debited to repairs account it is an error of principle and reduces the current year profit, so this has to be rectified.

Since repairs account is wrongly debited it has to be credited to cancel the entry. Whereas machinery account has to be debited to record the original entry. The rectified entry is -

Machinery a/c Dr 10000

To Repairs A/c 10000