Q.Installation charges paid on newly purchased machinery should be treated as:
(A) Revenue Expenditure, debited to the Profit and Loss Account
(B) Capital Expenditure, added to the cost of the machinery
(C) A Deferred Revenue Expenditure, written off over 3 years
(D) A Capital Receipt

Expenditure on the trial run of a newly installed machine is incurred to make the asset ready for use, so it is capital expenditure (added to the machine's cost). The correct answer is option (a).

In the Tamil Nadu HSC Class-11 Accountancy syllabus, capital expenditure includes not only the purchase price of a fixed asset but also every cost incurred to bring it into working condition — freight, installation, and trial-run/test-run expenses.

A trial run is done to test the newly installed machinery before regular production begins. Since it is a one-time cost needed to make the asset usable, its benefit lasts beyond the current year, so:

• It is not a revenue expenditure (which gives benefit only for the current period).

• It is not a deferred revenue expenditure or preliminary expense.

• It is capital expenditure, added to the cost of the machinery of ₹20,000.

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.

• (b) Preliminary expense — relates to forming a company, not to machinery.

• (c) Deferred revenue expenditure — a large revenue expense spread over years; not applicable, as this cost creates/prepares a fixed asset.

• (d) Revenue expenditure — wrong; the benefit is not limited to the current year.