Capitalize acquisition costs but expense insurance

Steps:

• Draft profit of $3000 treats both legal fees ($1500) and insurance ($4500) as expenses, reducing profit by$6000 total.
• Legal fees are capital costs for premises, so add back $1500 to profit.
• Insurance is an operating expense, so it remains deducted.
• Revised profit = $3000 +$1500 = $4500.

Why B is correct:

• Legal fees qualify as capital expenditure under accounting standards (e.g., IAS 16), added to asset cost instead of expensed, increasing profit by that amount.

Why the others are wrong:

• A. Adds back an incorrect partial amount, ignoring full legal fees.
• C. Subtracts legal fees from draft, treating them as additional expense.
• D. Capitalizes insurance too, wrongly adding back $6000 for$9000 profit.

Final answer: B