Capitalization Error Correction

Steps:

• Improvements to premises are capital expenditures, added to non-current assets and depreciated over time, not immediate expenses.
• Incorrect treatment expensed the cost, reducing profit and omitting it from assets.
• Correction reclassifies the amount from expense to asset, increasing total assets.
• Reversing the expense boosts profit for the year.

Why D is correct:

• Under accounting standards (e.g., IAS 16), capital improvements increase assets and, when correcting an expense, restore profit via reduced costs.

Why the others are wrong:

• A: Correction increases both assets and profit, not decreases.
• B: Assets increase, not decrease, upon capitalization.
• C: Profit increases, not decreases, when reversing the expense.

Final answer: D