Q.A trader purchased a second-hand machine for ₹80,000 and spent ₹15,000 on its overhauling before it could be used. He wrongly debited the entire ₹95,000 to the Repairs Account (Revenue Expenditure) instead of capitalising it. If, before this error, the Trading Account showed a Gross Profit of ₹1,20,000 and the Balance Sheet's Machinery stood at ₹2,00,000, show the CORRECT figures and the effect of the trader's error on Gross Profit and on the Balance Sheet's Machinery, ignoring depreciation for this year for simplicity.

The whole ₹95,000 (purchase price plus overhauling, both needed to bring this specific machine into working condition) should have been capitalised as Machinery, not charged to Repairs.

Add back the wrongly-debited ₹95,000 to Gross Profit (it should never have reduced this year's profit) and add the same ₹95,000 to Machinery (it should have been capitalised there instead).

Step 1 — Identify the correct treatment. The purchase price (₹80,000) and the overhauling expenses (₹15,000) are both needed to bring this specific second-hand machine into working condition — both are Capital Expenditure, to be added to Machinery, totalling ₹95,000.

Step 2 — What the trader actually did (the error). He debited the full ₹95,000 to Repairs Account, a Revenue Expenditure account, which reduced this year's reported Gross Profit by ₹95,000 and left Machinery completely unrecorded on the Balance Sheet.

Step 3 — Correct the Gross Profit.

Step 4 — Correct the Balance Sheet's Machinery.

Step 5 — Verify the effect matches the general rule. Treating Capital Expenditure as Revenue Expenditure understates BOTH profit and fixed assets — here, by exactly the same amount, ₹95,000, on both sides, exactly as the general rule (Section 6) predicts.

Cross-check: the SAME ₹95,000 that should have reduced Repairs (a P&L expense) and increased Machinery (a Balance Sheet asset) is missing from both places by an identical amount — this equality is itself a proof-check that no arithmetic error, only a classification error, occurred.

A common mistake is correcting only ONE side (e.g. fixing Machinery but forgetting to add back the Gross Profit, or vice versa) — because the SAME transaction is wrong in two places at once (an expense account and an asset account), both corrections must always be made together, never just one.