Theory question 104
Capital and Revenue ExpenditureClassify the following:
(i) Purchase of land (ii) Purchase of motor vehicle (iii) Rent received (iv) Repairs to motor vehicle (v) Fuel cost for running the vehicle (vi) Sale of land previously bought (vii) Interest on loan to purchase land (viii) Wages of cleaner (ix) Payments for carriage inwards on machine bought (x) Installation cost of machine (xi) Cost of repairs to a factory building (xii) Cost of papers used in the accounts department (xiii) Proceeds from disposal of motor vehicle (xiv) Commission received from a transaction (xv) Legal fees paid in buying a land
into: (a) capital expenditure; (b) revenue expenditure; (c) capital receipts; (d) revenue receipts.
Show the model answer
(a) Capital expenditure: (i) purchase of land; (ii) purchase of motor vehicle; (ix) carriage inwards on machine; (x) installation cost of machine; (xv) legal fees on buying land.
(b) Revenue expenditure: (iv) repairs to motor vehicle; (v) fuel; (vii) interest on loan; (viii) wages of cleaner; (xi) repairs to factory building; (xii) cost of papers.
(c) Capital receipts: (vi) sale of land; (xiii) proceeds from disposal of motor vehicle.
(d) Revenue receipts: (iii) rent received; (xiv) commission received.
Costs of buying an asset and getting it ready for use are capital; running and financing costs are revenue.