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Question

Treating capital expenditure as revenue expenditure will __________.

A
increase profit
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B
decrease profit
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C
increase net worth
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D
increase current ratio
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Solution

The correct option is B decrease profit
Treating Capital expenditure as revenue expenditure is an error of principle.
If capital expenditure is treated as revenue expenditure, this will reduce the profitability.
For example, Rs.5000 purchase of furniture is debited to purchase account. In such a case, purchases increase which ultimately reduces profits.

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