Misclassification of machine delivery cost as trading expense

Steps:

• Delivery cost for a business machine must be capitalized to fixed assets, not expensed.
• Including it in carriage inwards treats it as a cost of trading goods, adding to cost of sales.
• This wrongly expenses the cost in the year, reducing gross profit.
• Assets end up overstated as the cost inflates inventory valuation incorrectly.

Why D is correct:

• Capital costs expensed as revenue reduce profit (understated), but adding to carriage inwards overstates inventory assets per trading account rules.

Why the others are wrong:

• A: Profit is reduced, not increased.
• B: Assets increase via wrong inventory addition, not decrease.
• C: Assets are overstated from inflated inventory, not understated.

Final answer: D