Misclassification of Capital Expenditure Steps:

• Identify the error: Office computer is a fixed asset (capital expenditure), not inventory purchase (revenue expenditure).
• Assess draft impact: Recorded in purchases, it overstates cost of sales by treating full cost as immediate expense.
• Correct the entry: Transfer amount from purchases to fixed assets account, removing it from cost of sales.
• Determine effects: Lower cost of sales increases gross profit and overall profit for the year (assuming minimal or no depreciation in current year).

Why B is correct:

• B reflects the adjustment for error of principle: capital items expensed as revenue inflate costs, so correction reduces cost of sales and boosts profit per profit or loss statement formula (Profit = Sales - Cost of Sales - Expenses).

Why the others are wrong:

• A: Profit increases with lower cost of sales, not decreases.
• C: Cost of sales decreases (not increases), and profit rises (not falls).
• D: Cost of sales decreases (not increases).

Final answer: B