Q.Expenditure incurred ₹ 20,000 for trial run of a newly installed machinery will be :

Expenditure on the trial run of newly installed machinery is capital expenditure (added to the machinery's cost), so the answer is (a).

In the Tamil Nadu HSC Class-11 Accountancy syllabus, capital expenditure is spending that either acquires a fixed asset or brings an existing asset into a usable/working condition, giving a benefit that lasts beyond the current accounting year.

A trial run of newly installed machinery is a necessary step to make the machine ready for regular production. Any cost incurred to install, test and make the asset operational is part of the asset's acquisition cost and is therefore capitalised — added to the value of the machinery, not charged as an expense of the year.

Checking the options:

• (a) Capital expenditure — correct; the ₹20,000 is added to the cost of the machine. …