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CMA Foundation · Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions

Kapoor & Co. spent Rs 60,000 on wages for its own workers who built an extension to its office building. Wages were debited to the Wages Account. Which correction is needed?

The wages paid to own workers for building the office extension are capital expenditure. The correcting entry debits Building Account and credits Wages Account with Rs 60,000, which removes the amount from expenses and adds it to the cost of the asset.

  1. ADebit Building Account and credit Wages Account by Rs 60,000Correct
  2. BDebit Wages Account and credit Building Account by Rs 60,000
  3. CNo correction, as wages are always revenue
  4. DDebit Building Account and credit Cash Account by Rs 60,000

Explanation

Wages spent on constructing an asset are part of its cost, so they are capital expenditure. The wages account must be credited and the building account debited by Rs 60,000. Option 4 would credit cash again, though cash was already paid.

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