CapitalandRevenue

Expenditure

Capiul andRevenueExpenditure

Question1
Lilyis a newaccountsassistanthiredby an Accountingfirm.She is puzzledas to why
someexpensesare classifiedas capitalexpenditurein one companyand revenue
expenditure
in anothercompany.
REQUIRED
(a) lf a capitalexpenditureis recordedas revenueexpenditure,
statethe effecton the fixed
assets,owners'equityand net profit.

(iii)

;,;.;;;;;r';;

(c) Whatis the efGct,if revenueexpenditureis wronglytreatedas capitalexpenditure,on

(i)

the net profit,

t11

***-*3****"
(ii) the assettotal?

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(b)'M.---*---

akinguse of accountingconcept,explainhowexpenditureare classifiedas revenue

expenditureand capitalexpenditure.

t ll

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ffotal:61
Question2
Moniesspentby businesscan be dividedintoCapitalExpenditure
and RevenueExpenditure
(a) Explainthe differencebetweencapitaland revenueexpenditure.

l2l

(b)statewithreason
whether
thefollowing
is a cpitalor revenue
expenditure.t6l
(i)
(ii)

Costof overhauling
themachinery
engine.
Decorationof officepremises

Principles
of Accounts

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Principles
of Accounts

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CapitalandRevenue
Expenditure

CapitalandRevenueExpenditure

Question3
(a) (i)

Yi TingCo manufactures
soyamilkand her net assetsis $5 million.Shepurchased
a computerrecenilyat a much discountedprice of $500. Her accountant
suggestedthat this computerneednot be recordedas fixedassetsbut as an
expenseforthe.year.what accountingconceptis the accountantapprying?
Do you agreewith her?
t-31

(ii)

(iii)

Question4
The bossof a companywas lookingat the monthlyexpenditurereportand had some
queriesregardingsomeof the expenses.
REQUIRED
(U
Explainthe differencesbetweencapitalexpenditureand revenue
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expenditure.
(i i )
Statethe underlyingaccountingconceptregardingcapitaland
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revenueexpenditure.
(i i D
Whichof the followingitemsshouldbe regardedas capital
expenditureand whichshouldbe regardedas revenueexpenditure?
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i.
Repairsto damagedtoiletpipes
ii.
Installingnew metallockers

Yi Ting Co decidedto improvethe soya mitkmakersin her factory.The cost

of such additionarimprovements
is $ioo,o0o and the machinesiiil ue abte
to makesoye mirkfasterand tastier.what kind of expenditureis this?Give
reason(s)for youranswer
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ffotal:41

The value of Yi Ting Cos motorvehiclesrose by $100,000.What concept

shouldshe considerwhendecidingwhetherto recordthis gain?
iZt

Principles
of Accounts

EditedQuestions

Principles
of Accounts

EditedQuestions

CapitalandRevenue
Expenditure

CapitalandRevenue
Expenditure

Question5
It is essentialto differentiate
capitalexpenditurefrom revenueexpenditure
whenpreparingfinal
accounts.
REQUIREO
(a) Explain2 differencesbetweeRcapitalexpenditureand revenueexpenditure.

(iii)

Legalfeesincunedin the purchaseof factory

building.

(iv)

Decorationof officebuildings

(iv)

Enrolledstaffin courseson repairingplantand

machinery

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Question7
Christina,a sole proprietorin the furniturebusiness,incurredthe followingexpenditureduring
2011:
(b) Forthe itemsbelow,

(c) Statethe effecton net profitwhencapitalexpenditurehas beenwronglyheatedas revenue

expenditure.
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ffotal: 9l
Question6
Explaintwo differencesbetweencapitalexpenditureand revenueexpenditure

(ii)

Significantimprovements
madeto the shoppremise.

(iii)

Boughtfurniturefor resale.

(iv)

PurchasedsomeChristmasdecorativeitemsfor the shop.

(v)

Boughta newair conditioningunitfor the furnitureshop.

(vi)

Paid$80for installing
the newlyboughtairconditioning
unit.

Reouired:
Copythe followingtiableon youranswerpaper.
For eachof the aboveexpend.iture,
you are to indicateits natureand providea reasonfor

youranswer.

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(b )

Paymentforthe shop'sfire and theftinsurance.

(vii) Paymentfor repaintingthe deliveryvan and otherregularmaintenance

workdone.
(a)

(a)

(i)

t7)

Natureof Expenditure
(Capital
or Revenue)

state whetherthe followingis a ixpital or revenueexpenditure.

Thefirst item has been
completed
for youas an example.

s/N

Exoenditure

Tvoeof exoenditure

(i)

Qverhaulof engines to extend the usefii life

of delivery van

Capital expenditure

(ii)

Installation
of air-conditioners
for officebuildings.

Principles
of Accounts

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Princioles
of Accounts

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CapitalandRevenue
Expenditure

CapitalandRevenueExpenditure

(b) christinahad beenadvisedbv herfriendto classify

someofficesupplies(eg
holepunchers)totailingg65 as revenueexpendituie.Accordingto'ieititinit, staplersand
thi;-"
treatment
is in linewithan accounting
priniiple.

(b) state whethereach of the foilowingtransactionsof swan,s businessis

capitalor revenueexpenditure,
givinga reasonfor eachof youranswers.
(i)

Namethe accountingprinciplethat Christina'sfriend is referring

to and explainhow her
adviceis in linewiththe accounting
principle.
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(iD Extensionofshopspacewhichcost$8000.
(c)

Question
I
Mr Tanis in the business
of buyingandsellingcomputers
andequipment.
He is confusect
about
the differencebetweencapitalexpenditureanl revenueeroenditur".

Item

Grose Profit
Increase
Decrease

Net Profit
Increas
Decrease

(iit

(a)

Explainthe differencebetweencapitarexpenditureand revenue expenditure.

[4]

(b)

Mr Tan hadseveralexpenditure
in the @urseof runnang
hisbusiness.
state whethereachof the foilowingis a capitarexpenditureor revenueexpenditure.
[5]
(i) purchaseda diningtablefor staffto use in the stafflounge
(ii) Purchased
equipment
for resale
(iii) Paidfor petrolfor deliveryvehicles
(iv) Paidfor installation
of elevatorsin the warehouse
(v) Paidinsurancefor protectionagainstfloodin the warehouse
"l don'tsee the pointof separatingcapitaland revenue
expenctiture.',
Mr Tan remArked.
state the effectof crassifuing
revenueexpenditureas capitarexpenditure
on:
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(i)
Mr Tan'sexpenses
(ii)
Mr Tan,snet profit
(iii) Mr Tan,scapital

Quegtiong

I41

tableon youranswerpaper.Use this tableto show

Praq up the-.following
now rtems(i) and (ii) in (b) woutdaffectthe grossprofitand/ornet profit
ofthe business.Statetheamount.oftheincreAseoidecrease.
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(i )

REOUIRED

(c)

Purchaseoffurniturefor re-salefor $3 000.

'

ffotal:12]

(d) lfcapitalexpenditureis incorrecilytreatedas revenueexpenditure,

state
whateffeo{this hason the
(i)

netprofitofthebusiness

(ii)

fixedassetsofthe business

pl

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Fotal:'l2l

Question10

(a) For eachof the followingtransaQtiens,

statewhetherthe expenditureis a capitalor revenue
expenditure.

Transaction

Expenditure

Purchase
ofwattpaper
to coverthecrackiontG waiiSlfi6Eshophouse.
costof installing
a comffi

swan operatesa shopseilingfurniture.Beforepreparingthe finaraccount',

swan
knowsit is importantto distinguishbetweencapitaiexpenoitureand revenue
expenditure.

Costof replacing
tnetires of tne;ompanyvan

REQUIRED
(a) Explainthe termscapitalexpenditureend revenue
expenditure
providean examplefor eachtype
of expenditure.

Principles
of Accounts

[3 marks]
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Principles
of Accounts

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CapitalandRevenue
Expenditure

CapitalandRevenueExpenditure

(b) Explain@ differencesbetweencapitalexpenditureand revenueexpenditure

Question'12
wallie owns a pieceof landand he buysand sellssecond-hand
cars.Hisfinancialyearend
is 31 March.
REQUIRED
(a) Givetwo batures of each of the follorrring:
(i)

capitelexpenditure;

[4 marksl
ffotal:7'marks]
Question
11
EvelynLim heardfrom her_undethe.termscapitalexoenditureand revenueexoenditure.
Her uncle advisedher that the smail toon frat srrEuouffin tsl@7dTTG6'ouro oe
classifiedas revenueexpenditure.EvelynLim, however,had classifiedthe purchaseas
a capitalexpenditure.

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(ii) revenueexpenditure.

REQUIRED
(a)

Distinguish between capital expenditure and revenue expenditure. Give

appropriateexamplesto illustrateyour understanding.
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(b)

Nanleand explainthe accountingconceptin relationto the classifiction

of small
toolsas revenueexpenditure.
pt

(c)

Namethe type of enor that EvelynLim madewhenshe classifiedthe smalltools

as capitalexpenditure.
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(d)

lf revenueexpenditureis incorrecflytreatedas capitalexpenditurein the fim,s

books,statethe effecton:
(i) net profit;
(ii) fixedaSsets;
(iii) workingcapitat;
(iv) owner'sequity;
(v) capitatemptoyed.

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Question
13
a.
Explain
thedifference
between
capitrlexpenditure
andrevenue
expenditure.
Givean
exampjeof each.

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A businesshas classifiedthe purchaseof officeequipmenticr $30 ooo as revenue
expenditure.ldentifythe effectof the business'treatmentof its purchase,on: [21
i.

Profit

ii. Valueof the fixedasset

lTotal:5l
Princlples
of Accounts

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Principles
of Accou.nts

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Questions

CapitalandRevenue
Expenditure

il

Question14
Balaoperatesas a food merchant.
REQUIRED
(a) classifytheiellowingas 'capital'or'Revenue'expenditure
andgivereasonsfor your
classification.
(i) Paid$4 000 for repairsto meatcuttermachine.
(ii) Decorations
for thestallduringChristmas
amounted
to $300.
(!ii) Boughta motorvehicte,$2S000 to facititatedetiveryof food.
(iv) Boughtparkingcoupons,
$20froma department
store.

CapitalandRevenueExpenditure
(d)

t2

What is the accountingprincipleused as a criterionin classifyinga capitalor

revenueitem(expenditure)?
t1 1

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rrotal:1ql
Question16

*r... **'it*:9!.tf-9re.r"9:-e-bs$gpn--s?p"t"tfl
9"rp-_eF-qit]r.i_e."?ng"r_e--vei:tr,r.9-erp-engt_tlQuestion15
(a)
Explainbrieflytwo differencesbetweencapitalexpenditure
and revenue expenditure.

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I 11
(b)

.. :

For each of the followingtransaotions,state whether it is a capitalexpenditur

or
revenueexpenditure.

the bottleddrinksto be
(b)

lf capitalexpenditureis inconecilytreatedas revenueexpenditure,

what would
be the effecton the following;understatedor overstated
vl
(i)

Expenses

( ii)

Net Profit

and revenueexoenditure.
(i) state whethereaohof the followingexpensesis capitalor Revenueexpenditure:

( iii) FixedAssets

(iv) Owne|,sEquity
(c)

various businesstransactionsof a departmentalstore are given below.state

whethereachof the follor/ingexpensesis capital expenditureor revenue
expenditure:
( i)

lnstallationof newescalatorin the store

( ii)

Purchaseof computersfor staff use

gl gS0.
Painting
of existingshoppremises,

Upgradingof existingcomputersystem,$200

Purchaseof air conditioner,

$3 000

Installation
of air conditioners,
$9S0

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121

(ii)lf Melvin keateda capitelexpenditure

wronglyas ReveRueexpenditure,
whatwouldbe
the effectof this errorin his business':

( iii) Paymentof intereston a bankloan

( iv) Depreciation
of thedeliveryvehicles
(v)

I4l
euestion17
Duiingthis acoountingyear,Melvinhad madetotalpaymentsof $6000from his bank
accounton goodsand seNices.l'le was unableto differentiatebetweencapitalexpenditure

Net profitin Profitand LossAccount

Fixedassetsin the BalanceSheet.

Purchaseof stationeryfor officeuse

( vi) Costof rebuilding

a flre-damaged
shop

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(iii) Explaintwo differencesbetweencapital Expenditure

and RevenueExpenditure. t2l
Fotah 6l

Principles
of Accounts

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CapitalandRevenue
Expenditure

13

Question18
HongBaois a solehaderwho is in the businessof buyingandsellinghighenddesignergoods
from all over the wodd. He recentlyboughta detiveryvarifor his buslneis ,sr jna ii *nt seo
as to how he shouldaccountfor it.

CapitalandRevenueExpenditure

Question19
Queenaruns a boutiquesellinglimitededitioncomputerhardware.While checkingher Casfi
Bookat the end of the monthof september2011, she noticedthe followingpaymentimade..
Ng
(i)
(ii)
(iii)
(iv)

REQUIRED
(a)

Distinguishbetweencapitalexpenditureand revenueexpenditure.

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Date
Sep 7
10
18

Pavmentsmade
Utilitiesexpensesfor monthof August20,1.1
Purchaseof computerhardwarefor resale
Trainingforstafftoupgradetheirtechnicalskiils

25 Rentalexpenses
forprinterin replacement
offaulty
printer
forofliceuse

REQUIRED
(a)
Distinguishbetweencapitalexpenditureand
revenueexpenditure.
(b)

Adviseand explainto Hong Bao clearly,as to whetherhe shouldheat the deliveryvan

as a capitalexpenditureor revenueexpendlture.
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(c)

what will be the effecton net profitand fixedassetsif a revenueexpenditureis wrongly

treatedas a capitalexpenditure?
pl

(d)

Thedelivery
vancosts$2s000.Another$3 500wasspentto equiptheintedorof the
vanwiththenecessary
shelves,
andthevanuses$50oi petroleveryoaytoraeliveriis.
HowmuchshourdHongBaorecognise
as the acquisition
@st of tne oetiveryvani
l2t

14

Amt($)
550
10000
1 800
900

t2l

(b)

Briefly.explainwhy it is importantto correcilyaccountfor expensesas either capital

expenditureor revenueexpenditure.
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(c)

AdviseQueenaon whetherto a@ountfor the expensesaboveas capitalexpenditureor

revenueexpenditure.
t4l
(l)
ri
iI
1 ..,

(iii)

\..,

livl

lTotal: 7 I
l Total :81

Principles
of Accounts

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of Accounts

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CapitalandRevenueExpenditure

15

CapitalartdRevenueExpenditure

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Question20
cong Min is a furnituredearer,who buysand seilsfurnitureat yew Tee point.

Question,2l

REQUIRED
(a)
Statewhetherthe followingtransactionis capitalor revenueexpenditureand

Wam Chengownsa businesssellingfurnitureand needsyouradviceon distinguishing

capital
and revenueexpenditure.
the

accountsinvolved.

(a)

Stateand explaintwo differencesbetweencapitalexpenditureand revenueexpenditure.

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(b)

Classifythe followingbetween,Capital,and'Revenue'expenditure
for the businessand
give reasonsfor yourclassification
t6l

furniturefor resaleby
cashfromTan KK Ltd,

t41
(b)

lf cong Min hasmistakentreatedsomeof the revenueexpenditureas capital

expenditure,
statethe effectof this erroron the following:

Item
(i)

Effect(Understate
or Overstate)

Fixedassets
for cupboardsboughtfor resale

Net Profit

t2l
(c)

Stateone ditferencebetweencapitaland revenueexpenditures.

a2t.

WamChengissuedher
personalchequeto shaun
Contractorfor buildingan
extensionto shoppremises.

lTotal:8l
Principles
of Accounts

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of Accounts

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CapitalandRevenueExpenditure
(c)

tt

Statethe nameof the accountto debitand creditfor eachof the expenditures

givenin

(b)

t4l
Actount to debit

i)

ReceivedinvoicefromAussino
for cupboardsboughtfor resate

ii)

Paidcashto QuickFix to
maintainair-conditioners
in the
retailstore

i i i)

Receivedbill from Lim Supplies

for purchaseof chairsfor office
use.

iv)

CapitalandRevenueExpenditure

Actount to crcdit
(b) Explainwhy the expenditureon the computershouldnot be includedin the profitandloss
accountfor the yearended31 December2010.
t ll

,
'''''. . '. '', ''"'- ''''. - ''''''

Question
23
January
2009,Shermaine
starteda nailspabusiness.
Shepurchased
equipment
oncredit
9n.1
forherbusiness
at $6,500fromManicure
BeautyLtd.
Onthesameday,Shermaine
alsoincurred
following
the
expenditure
ontheequipment:

WamChengissuedher
pefsonalchequeto shaun
Contractorfor buitdingan
extensionto shoppremises.

One-timeinstallationiee
Annualmaintenance
fee of equipment
REQUIRED

(d)

state the efiecton the followingif a capitalexpenditure

was wronglyclassifiedas,
'.
revenueexpenditure.
i)

1, 500
650

a) Givetwo featuresof eachof the follol\ring:

,0,- 9eprte!
e,xp-ptrdi!rrc___*

t1]

Profitand LossAccount

ii) BalanceSheet

fii)

nevenuri
bioeniiiiuie.

[Total:15]
Question
22
Kelvinis a furnituredealer.Duringthe year2010,he purchasedfurniturefirr $10 000. He also
paidfor a computercosting92 000 for officeuse.

b)

In the

explainif each of the above expenditureis a

REQUIRED
(a) Explainwhy Kelvinwouldclassifyfurnitureas revenueexpenditure.

Principles
of Accounts

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EditedOuestions

P.lnciples
of Accounts

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CapitalandRevenueExpenditure

l9

CapitalandRevenueExpenditure

2Q

al maint enanc e
fee of equipmentof
$ 65 0

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Question25
c)

d)

I2l

wqrkinsctearty,
_c--d9-!t!{9j!E
!9-t-?"1-9!pl-9le_Cgtpltg.t!_s_-trp-Uygqt

; irr

-;,;;;;;';;;"-*;"-';-;;;;;;;;;';;;-

(a)

Explainthe differencebetweenCapitalexpsnditureand Revenueexpendltur.

I4l

(b)

seliciapaid$1 000for annualservicingof her motorvehicleon 31 December2010.

Statewhetherthis is a Capitalexpenditureor Revenueexpenditure.
tl l
Question26

iir
lTotal: 8ml
Installation
of air conditioners
and otherfittingstb

Question24
(a)
state whethereachof the followingexpenditureis a capitalexpenditureor
revenueexpenditure.
Explainyouranswer
S/N

Transaction

(i)

Bought
photocopiers
for
resale.

(ii)

Sentoffice
photocopier
for
repairs.

(iii)

Upgradedthe
featuresof office
photocopiers.

Typeof Expenditure

REQUIRED
a) Completethe tableaboveby statingthe type of expenditurefor eachof the transaction.ltem
(i) has beendonefor you as an example.
t4l

Reason

b) Givetwo featuresof eachof the following:

t4]

(i) Capitalexpenditure

(ii) Revenueexpenditure

I6t
(b)

lf Sherman,treated a capital expenditureincorrecflyas revenueexpenditure,

statethe effecton his finalaccountsand balancesheet.

Principles
of Accounts

EdltedQuestions

c) Explain
theeffectonthefollowing
if capitalexpenditure
is incorrecuy
treatedas revenue

expenditure.
i. Netprofit

Princloles
of Accounts

pl

EditedQuestions

CapitalandRevenue
Expenditure

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ii. Fixedassets

Question27
Statethe typeof expenditurefi)r eachof the follorving:
The costof a newcomputerpaidfor by cheque.
The purchaseof printingpaperand ink cartridges.
computermodifications,
includingmemoryupgradesand installationof software.

t3t

Insuranceand roadtax of deliveryvans

Purchaseofanewmachine
Caniageinwardson purchaseof the new machine
Paidfor repairsto officeequipmentby cheque

stat the amountthatshouldbe chargedto Aimei'sprofitand LossAccount.

3. Enrolledstaff in courseson repairingcomputers,$1 g00. The amountto be

paidin threeweeks'tirne.
4. The bankstatementsho/vedintereston bankoverdraft,$i4.

Reason
2 . . . . ,,,,,.
.................,......e xo e n d i tu r e
Reason:

t1l

lf Aimeitreated
a revenueexpenditure
wronglyas capitalexpenditure,
whatwouldbe the
eneq ot thtserroron herbusiness's
profit
i) net
in Profitand Lossaccount
fixedassetsin the BalanceSheet

Question30
Patricia owned a business selling and repairingoffice equipment.The following
transactions
werecarriedout by her in the monthof April2010:

REQUIRED:
(a) For each of the above, identitywith a brief reason, if it is revenueor caoital
expenditure.

Reason

Aimeispenta totatof $s60000 to buitdan extensionto herfactory.This included$3 ooo

roof repairsof old hctory, S2 d00 repaintingfor old factoryand $g OOO
tor tfreinstaltation
of air conditioningunitsto the extensionof factory.

ii)

lt)

2. lnstalledair-conditioner
unit in nevvmanager,sroom,93 000. This was paid in
full by cheque.

(i)
( ii )
( ii i )
(iv)

(d)

Explainwhy it is importantto distinguishbetweencapitaland revenueexpenditure.

t41

1. Boughtfax machinesof list prioe$14 800, less 10% trade discount,from

PatrickOfficeSupptiesLtd.

$
1 050
lgg00
100
2 2OO

REQUIRED
(a) Give2 featuresto differentiate
betweencapitalexpenditureand revenueexpenditurb.t4l
(b) state, with reasons,whethereach,ofthe aboveexpenditures
is capitalexpenditureor
revenueexpenditureusingthe formatbelow:
t41
Typeof Expenditure

(b) Statewhethereach the followingtransactions

is a capitalor revenueexpenditure.
i. Receivedan invoiceof $400for cleaningthe premises
ii. Purchaseda photocopymachinefor officeuse by cheque
iii. Depreciation
chargefor the photocopymachine
iv. Boughtstationeryfor officeuse on croditfromJimmyTrader
(c)

Question28
Aimei,a manufacturer
of ladies'wears,providesyou withthe followingexpenditures
on 30 April
2010,herfinancialyearend:
i)
ii)
iii)
iv)

22

(e) Explainto Tony,a soletrader,the differencesbetweencapitalexpenditureand revenue

expenditure.
t4l
ffotat: 10ml

(a)
(b)
(c)

CapitalandRevenueExpenditure

pl

....expenditure

Reason:,
4 . . . '. ......................
........e xp e n d i tu r e
Reason:

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Question29
Principles
of Accounts

EditedQuestions

Prlnciplesof Accounts

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CapitalandRevenueExpenditure

CapitalandRevenue
Expenditure

(b) Statehowcapitaland revenueexpenditureare treatedin accounting.

24

Question
32
Nanok
theownerof speedyDelivery,
a freightforwarding
firmisconfused
aboutcapital
expenditure
aRdrevenue
expenditure.

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(a)

t3t
Question31
Alfredis a computerhardwareand ac@ssoriesretailer.The followingtransaclionsrelate
to
hisbusiness:
(i) Advertisingexpensesof $1,000incurred,
(ii).commission.amounting
to $3,oooreceivedfromsupplierfor computerac@gsoriessotd,
(iii) Paymentof $s,000for computernetworksystemtoi use in tni
ofi.Jov cn!ii,d.(iv)Intereston toanof $500paidto UnionBank.

REQUIREO
(a) Complelethe followingtableby stating,for eachof the transactions
above,whetherthe
Kecerpror Expenditureconcerned
is Revenueor capltatin nature.Also,state
how
eachwill affectnet profit(lncrease,Decrease,or No Effect).rtre answlis'tof 'transaction(i) havebeengivenas an example.

(b) For6achof the followingexpenditureinc.urred

by speedyDeliveryduringthe yearended
31 May2010,statewhetherit is capitator revenueexpendituieby dmplaing the '
table.

Purohaseof newdeliveryvehiclefrom KomocoAuto.

Costof painting
company's
nameon tfrenewvehicle.

(b) Explainthe effectof wronglytreatingcapitalexpenditureas revenue

expenditureon
owne/sequity.

Costof modifcation
to engines
totG vEnEi6ito-

the vehiclesto operateon bothpetroland naturalgas.

Costof replacing
worn-out
tyrel oivEhEi6
(c) state the effectson the Profitand LossAccountand Balancesheetwhena capital
expenditureis wronglytreatedas a revenueexpenditure.

tzl

Principles
of Accounts

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Principles
of Accounts

Edited
Questions

CapitalandRevenueExpenditure

25

CapitalandRevenueExpenditure

26

(i) Profitand LossAccount

Reason:
Typeof expenditure(ii)
(ii) BalanceSheet

Typeof expenditure(iii):
(d) Nanokhad purchasedsomeinexpensive
toolsto help in the maintenance
of her
vehicles.Thesetoolsare expectedto be usefulover severalaccountingpeilods.Advise
Nanoklrcwshe shouldclassi! the expenditureon the tools,explainingyburanswerwith
thesupportoftherelevantaccountingconcept.
, t2l

(c)

lf capitalexpenditure
was wronglytreate.das revenueexpenditure,
explainthe effeob on net
profit and fixed assets.
I2l

Fixedassets:
[Q2Totah10M]
Question34
PengSiongrunsa buslnessrepairing
andsellingcomputers,
On 31 July2009,pengSionghad
the followingbalancesin his booksof eccountafterthe preparationof the finalaccounts.
c

Question33
A business'expenditurecan be classifiedinto revenueexpenditureor capitalexpenditure.An
airlinecompanyhasthefollowingexpenditure
in March2010:
(i) Changingthe enginesto a morefuel-efficient
model.
(ii) Insurancefor the aircraft.
(iii) Repairingthe faultypartsof the aircraft.

OfficeEouioment
Cashat bank

5C

Capital

10250

Debtors
Stock

500
2 000
250

Creditors

Required
(a)
Explainthe termscapitalexpenditureand revenueexpenditure. t4t

REQUIRED:
(a) Distinguishbetweenrevenueand capitalexpenditure.

t2]

(b)

t6l

Purchases

(iv)

Paintino of office

EditedQuestions

Revenue
exoenditure

ates
ficeeouioment

t31
(o)

TypeoJexpenditure
(i):

Draw.uF the followingtableon youranswerpaper.ldentifythe itemswhichrepresent

Caoital Expenditlre, RevenueExpenditureor lncome. The first itemhas b.ben
completedas an examDle.

(i)
(i i )
{i i i )

(b) state the typeof expenditurefor (i) to (iii).Givea reasonto supporteachof youranswer.

Principles
of Accounts

3 000

Explain
whyPengSiongwouldclassiry
computers
asa revenue
Expenditure.

Principlesof Accounts

t1l
EditedQuestions

CapitalandRevenue
Expenditure

(d)

27

(ii)

Nameand explainthe accountingconceptappliedby Andrewin

vatuingloosetools,

(iii)

Printing.ofthe companylogo,$350on the deliveryvan as partof

advertisingand promo-tion.

t2l

(iv)

Paymentfor annualinsurance,alreadyincurred,for the deliveryvan, $1

800.

t4

pl

state and explainthe effectthat the decisionhas on peng siong'sprofitfor not

capitatising
toosetoots.
t21
[Tot9h t2l

Question35
(a)
Explaintwo differencesbetweenoapitaland revenueexpenditure.

ffobt: 16]

I3I
state whethereachof the folrowin-g
expenditures
of Himarayas
co, a retailstore,is
Capitalor RevenueExpenditure.
Giveone reasontOsupportyouranswer.
purchaseof campingequipmentfor
resale.
paymentof interest.onlonfor
the purchaseof deliveryvan.
paymentfor extensionof retailstor!.
purchaseof petrolfor deliveryvan.
Paymentof costof replacingwornout tileson the retailstore
ftoor.

(i)
(!il
(iii)
(iv)
(v)

28

preventenginefromoverheating.

Pengsiong usesa number.ofsmail,inexpensive

toorswhenrepairingcomputers.
Theseare includedas purchases.
(i)

(b)

CapitalandRevenueExpenditure

Question37
Peteris a nerrvly
set up firm.Beloware somehansactionsthat o.ccurred
in the monthof
January2010.
(i) Boughta laptopworth$2,500for ofiiceuse.
(ii) Depreciation
of ofice equipmentat $400.
(iii) Paid$500to instailthe firm'snewair conditioning
sysrem.
(iv) Boughttwo motorvehiclesfor resale.
tlol

Question36
Whenpreparingfinalaccountsit.isimportantto distinguishbetweencapital
expenditureand revenueexpenditure.

REQUIRED
(a)

state whethereachof the followingexpenditureis capital Expenditure

or Revenue
Expenditure.
pl

(b)

Explainyourctassification
for (iii)

t1l
ffotal: 3l

REQUIRED
(a)

Exprainthe differencesbetweena revenueexpenditureand a capitar

expenditure.

t41

(b)

S-tateand explainthe accountingconceptthat is beingappliedwhen

distinguishing
betweena revenueexpenditureand a iariiiir expenditure.

t4l

(c)

A businessincurredexpenditureon a deliveryvan.

Question38
(a)
Explainthe difbrencesbetweenCapitalExpenditurcand Revenue
Expenditure.

t4l

Statewith a reaaonthe typeof expenditurefrcreach of the following:

(i)

Purchaseof a newengine,$2 0OOto boostthe speedof the deliverv

van.

t4

(ii)

Purchase
of 100lihesof engineoil,$5OO
to lubricate
the engineand

Izl

Principles
of Accounts

EditedQuestions

Principlesof Accounts

EdltedQuestions

Clpnaldd R.vd@ ExFndjtur!

lb)

29

It Bv.nu ,eenditur!sa! wrrEty ir!6brt s! cipibtqp.ndtu|s. dd.in $. dirC on

th! Pr!fita.d Lo!! a..cJnr endttl! BatsnceshEr
g

C.litst lnd RftnE E,(Fndjrc

3l)

eu.dron 39
compon.ntFlb vdrl.trsr alrdnuod
Fn! rd !!lb trnpli.r on dldit b !dod!. lte DUy8
InE ECoryandlt|6 .ldlt/lrld b Eh6lr In ht. b6tn.! mobrv6hi,:b.,

REQUIRED
(a) Explainthe meaningofcapitalexpenditurc
andrevenue
expenditure.
CapitalExpenditure

(c)

A businesshasthe bllowingtransactions.
For eachitem,statewhetherit is capital
. expenditureor revenueexpenditureand explainyouranswers.
t4l
(i)

Revenue
Expenditure

Installationbhargespaid by cash to get new machineryinto an operational

condition.

t4l
(b)

Giveone exampleof capitalexpenditureand one exampleof revenueexpenditurein

BangKai'sbusiness.
(ii)

Repairsto motorvan for offce use.

t2l

CapitalExpenditure
RevenueExpenditure

(iii)

(c)

Intereston bankloan paidthroughthe businessbankaccount.

lf capitalexpenditureis incoffecflytreatedas revenueexpenditure,

statethe efiectIn
BangKai'sbookson:

121

(i) net profit

(iv)

Extensionof existingshoppremisesby LiangConstruclionLtd.

(ii)fixedassets
ffotal:81
ffotal: 10]

Princlples
of Accounts

EditedQuestions

Principles
of Accounts

EditedQuestions

CapitalandRevenueExpenditure

3l

Questiorl40
Liu Lian ong is unsurehow to..categorisehis expendituresin the cash book into
capital
expenditureand revenueexpenditure.
(l) Explainthe diferencesbetweencapitarexpenditure
and revenueexpenditure.

t4l
(ii) ldent{y one exampleeach of capitalexpnditureand revenue
expendituftom Liu
LianOng'scashbook.
Capitalexpenditure
Revenueexpenditure

t2l
(ill) lf-therevenueexpenditurein (li) is inconecilytreated
es cepitalexpenditure,statethe
effect of this enor on each of the foilorving:
Item

Effect

Net profit
Fixedassets

Il l
ffotal :4

Principles
ofAccounts

Edited
euestaons