Nature of the Error: The error lies in incorrectly classifying the cost of repairs to the building. Repairs to a building are generally treated as capital expenditure if they add to the value or useful life of the asset. Revenue expenses are incurred for day-to-day operational activities and do not increase the value of assets.

Effect on Financial Statements:

• Profit and Loss Account: Treating the repairs as a revenue expense will result in an understatement of profit. The profit figure will be lower than it should be.
• Balance Sheet: The building's carrying value on the balance sheet will be understated. The cost of the repairs should be added to the original cost of the building.

Corrective Action:

1. Capitalise the Repairs: The £25,000 repair cost should be capitalised and added to the original cost of the building. This means the building's carrying value on the balance sheet should be increased by £25,000.
2. Adjust the Profit and Loss Account: The revenue expense that was incorrectly recorded should be removed from the profit and loss account. This will increase the profit figure.
3. Update the Building's Cost: The accounting records should be updated to reflect the increased cost of the building. This will ensure that the building's carrying value is accurate. A table summarizing the changes is shown below.

This is a capital receipt. The purchase of a new machine is an investment in the business's future and will provide benefit for more than one accounting period. It increases the company's assets (specifically, the value of the machinery). This is a fundamental characteristic of capital receipts.

Accounting Treatment:

• The purchase of the machine would be recorded as a debit to the cost of the machine (an asset account) and a credit to the account payable (or other liability account) because the machine was purchased on credit.
• The machine itself will be shown on the balance sheet as an asset.
• The cost of the machine will be depreciated over its useful life, and this depreciation expense will be recorded in the income statement each year. This is how the cost of the asset is allocated to the periods in which it provides benefit.

The purchase of office stationery and the payment of monthly rent are classified as revenue expenditure because they are costs incurred in the normal running of the business. They provide benefit only for the current accounting period and do not result in the acquisition of a long-term asset. These are day-to-day expenses necessary to maintain the business's operations.

The accounting treatment of a new computer purchased for use in a business differs significantly. The computer should be treated as capital expenditure. This is because a computer is a long-term asset that will benefit the business for more than one accounting period. It will be recorded on the balance sheet as a fixed asset and depreciated over its useful life. The cost of the computer will not be fully expensed in the current accounting period; instead, it will be spread over several years through depreciation.

Key Difference: The key difference is that revenue expenditure is expensed in the period it is incurred, while capital expenditure is capitalised and depreciated over its useful life. This difference impacts the profit reported in the income statement and the assets reported on the balance sheet.