Revenue and Capital Expenditures

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Questions and Answers

A significant expenditure on advertisement is typically categorized as what type of expenditure?

  • Capital expenditure
  • Revenue expenditure
  • Deferred revenue expenditure (correct)
  • None of the above

An advertising campaign launched to introduce a new product is generally classified as:

  • Capital expenditure
  • Revenue expenditure
  • Deferred revenue expenditure (correct)
  • None of the above

Where are capital receipts typically presented in financial statements?

  • Trading Account
  • Profit & Loss Account
  • Balance Sheet (correct)
  • Manufacturing Account

Expenditures and receipts of a revenue nature are recorded in which of the following?

<p>Either to Trading Account or Profit and Loss account (D)</p> Signup and view all the answers

Receiving money from selling a fixed asset is an example of what?

<p>Capital receipt (B)</p> Signup and view all the answers

Which of the following best describes the accounting treatment for a major overhaul of machinery that extends its useful life?

<p>Capitalize the cost as an asset improvement (A)</p> Signup and view all the answers

A company spends $10,000 on advertising. $6,000 is expected to benefit the current accounting year, and $4,000 is expected to benefit the next. How should this be recorded?

<p>$6,000 expensed, $4,000 as a prepaid expense (D)</p> Signup and view all the answers

A business purchases new computers for office use. How is this expenditure classified?

<p>Capital Expenditure (A)</p> Signup and view all the answers

Which of the following transactions would not typically result in a capital receipt?

<p>Sale of goods to customers (A)</p> Signup and view all the answers

A company undertakes extensive market research before launching a new product. This market research is expected to provide benefits over the next three years. How should the cost of market research be accounted for?

<p>Capitalized as a deferred revenue expenditure and amortized over three years (B)</p> Signup and view all the answers

Structural alterations that cost Rs. 25,000, increase the revenue earning capacity of an existing asset. How is this classified?

<p>Capital expenditure (C)</p> Signup and view all the answers

Rs. 1,500 is spent on repairs before using a second hand car purchased for business use. How should this be classified?

<p>Capital expenditure (D)</p> Signup and view all the answers

To which account will the installation expenses for new machinery be posted?

<p>Machinery A/c (D)</p> Signup and view all the answers

Rs. 2,500 is spent on the overhauling of a second-hand machine upon purchase. What type of expenditure is this?

<p>Capital expenditure (A)</p> Signup and view all the answers

A company spends Rs. 50,000 on advertising for a new product launch. It expects the benefits to last for four years. What type of expenditure is this most likely to be classified as?

<p>Deferred revenue expenditure (C)</p> Signup and view all the answers

Which of the following would NOT be considered a capital expenditure?

<p>Routine maintenance of equipment (D)</p> Signup and view all the answers

A business replaces a component of a machine, extending its useful life by five years. The cost is Rs. 10,000. How should this expenditure be treated?

<p>Capitalized as a capital expenditure (D)</p> Signup and view all the answers

A company purchases a new software license for Rs. 12,000, which is expected to be used for three years. What is the most appropriate accounting treatment for this cost?

<p>Capitalization and depreciation over its useful life (A)</p> Signup and view all the answers

Which scenario best describes a revenue expenditure?

<p>Repainting the office building. (A)</p> Signup and view all the answers

If a company incorrectly classifies a revenue expenditure as a capital expenditure, what is the likely impact on the financial statements in the period of error?

<p>Net income will be overstated. (B)</p> Signup and view all the answers

Which financial statement typically includes details of capital receipts?

<p>Balance Sheet (D)</p> Signup and view all the answers

The sale of fixed assets results in what type of receipt?

<p>Capital Receipt (A)</p> Signup and view all the answers

Which of the receipts is classified as revenue receipt?

<p>Sale of goods (C)</p> Signup and view all the answers

Classify 'Sale of stock in trade'.

<p>Revenue Receipt (B)</p> Signup and view all the answers

An old machine's scrap value of Rs. 5,000 is categorized as:

<p>Revenue Receipt (B)</p> Signup and view all the answers

How is the renewal fee for a patent typically classified in accounting?

<p>Revenue expenditure, expensed in the period incurred. (C)</p> Signup and view all the answers

Interest received on investments from UTI would be:

<p>Revenue Receipt (C)</p> Signup and view all the answers

What is the accounting treatment for money paid to MTNL for installing a telephone in the office?

<p>Asset (C)</p> Signup and view all the answers

When goods are purchased specifically for resale, how is the cost of these goods generally classified?

<p>Revenue expenditure, directly related to the cost of goods sold. (A)</p> Signup and view all the answers

How would you classify money paid for repairs that maintain an asset's existing condition?

<p>Revenue Expenditure (C)</p> Signup and view all the answers

What type of expenditure is depreciation on a fixed asset considered?

<p>Revenue expenditure, reflecting the asset's usage in generating revenue. (A)</p> Signup and view all the answers

How should heavy advertisement expenditure, intended to benefit several future periods, typically be treated?

<p>Deferred Revenue Expenditure, amortized over the periods benefited. (C)</p> Signup and view all the answers

If a business secures a loan to purchase new equipment, which type of receipt accurately describes the loan?

<p>Capital Receipt (D)</p> Signup and view all the answers

A company invests in upgrading its existing machinery to enhance production capacity; how is this expenditure classified?

<p>Capital Expenditure (A)</p> Signup and view all the answers

Which of the following factors is LEAST likely to influence the classification of an expenditure as capital versus revenue?

<p>The opinion of the company's auditor regarding the expenditure. (D)</p> Signup and view all the answers

A company spends $50,000 to repair a machine, restoring it to its original condition after a breakdown. It also spends $150,000 on upgrades that increase the machine's output by 30%. How should these costs be classified?

<p>$50,000 as revenue expenditure, $150,000 as capital expenditure. (C)</p> Signup and view all the answers

A retail company incurred significant costs in redesigning its store layout to improve customer flow and increase sales. This redesign is expected to enhance the store's appeal for the next five years. How should the costs associated with the store redesign be classified?

<p>Deferred revenue expenditure, amortized over the five-year period. (B)</p> Signup and view all the answers

A company purchases land with the intention of constructing a new factory in two years. In the meantime, the land is used as a parking lot. How should the expenses related to maintaining the parking lot (e.g., lighting, security) be classified during these two years?

<p>Revenue expenditure, as they are costs associated with the current use of the land. (B)</p> Signup and view all the answers

एक व्यापारी के कमघचारी द्वारा गबन कर ली गयी रकम को आप क्या कहेंगे?

<p>आयगत हाधन (C)</p> Signup and view all the answers

सत्ता की अवधारणा के अनुसार, किसका अस्तित्व व्यापार से अलग माना जाता है?

<p>तवामी का (C)</p> Signup and view all the answers

दोहरा लेखा अवधारणा किस देश से उत्पन्न हुई मानी जाती है?

<p>इटली (C)</p> Signup and view all the answers

दोहरा लेखा अवधारणा के प्रवर्तक/जनक कौन माने जाते हैं?

<p>लुकास पैस्सियोली (C)</p> Signup and view all the answers

दोहरा लेखा अवधारणा का विकास किस शताब्दी में हुआ?

<p>15 वीं शताब्दी (D)</p> Signup and view all the answers

लेखांकन में 'समान Dr. तथा समान Cr.' का नियम किस अवधारणा पर आधारित है?

<p>दोहरा लेखा अवधारणा (D)</p> Signup and view all the answers

आहरणों पर ब्याज लगाने का कारण क्या होता है, जिसके लिए कौनसा अवधारणा जिम्मेदार है?

<p>सत्ता की अवधारणा (A)</p> Signup and view all the answers

यदि कोई व्यापारी अपने निजी खर्चों के लिए व्यापार से पैसे निकालता है, तो लेखांकन पुस्तकों में इसे क्या माना जाएगा?

<p>आहरण (C)</p> Signup and view all the answers

लेखांकन में किस अवधारणा के अनुसार, स्वामी और व्यापार की लेखा पुस्तकें अलग-अलग होती हैं?

<p>सत्ता की अवधारणा (A)</p> Signup and view all the answers

लेखांकन में संपत्ति, दायित्व, खर्चे और आय किसके अनुसार अलग-अलग माने जाते हैं?

<p>सत्ता की अवधारणा के अनुसार (A)</p> Signup and view all the answers

Which accounting concept justifies the practice of converting paise into rupees in financial records?

<p>Full Disclosure Concept (C)</p> Signup and view all the answers

Under which accounting concept would a business record the purchase of a calculator as a stationery expense, rather than capitalizing it as an asset?

<p>Full Disclosure Concept (B)</p> Signup and view all the answers

A company chooses to record minor expenses in a sundry expense account instead of creating individual accounts for each. Which accounting principle best supports this practice?

<p>Full Disclosure Concept (B)</p> Signup and view all the answers

The adjustment of outstanding, prepaid, accrued, and unearned income in the balance sheet is primarily based on which accounting concept?

<p>Full Disclosure Concept (B)</p> Signup and view all the answers

Which concept assumes that a business will continue to operate indefinitely and is not likely to liquidate in the near future?

<p>Going Concern Concept (B)</p> Signup and view all the answers

A business records its fixed assets at their historical cost in the balance sheet, even if their market value has changed significantly. Which principle justifies this practice?

<p>Going Concern Concept (A)</p> Signup and view all the answers

Which accounting concept dictates that only transactions and events that can be measured in monetary terms are recognized in the financial statements?

<p>Money Measurement Concept (D)</p> Signup and view all the answers

A US-based company preparing its financial statements in US dollars is adhering to which accounting concept?

<p>Money Measurement Concept (B)</p> Signup and view all the answers

Which concept is most directly violated if a company does NOT disclose significant lawsuits it is currently facing in its financial statement notes?

<p>Full Disclosure Concept (B)</p> Signup and view all the answers

A company consistently applies the same accounting methods from one period to the next. While not explicitly mentioned, this practice is essential for which broader goal of accounting information?

<p>Comparability (C)</p> Signup and view all the answers

Flashcards

Capital expenditure

Expenditure that increases the asset's earning capacity.

Repairs on Used Asset

Expenses incurred to make a second-hand asset ready for use.

Installation expenses

Costs to set up a new machine for operation.

Overhauling cost

Expenditure to restore a used asset to working condition upon purchase.

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Revenue Expenditure

Expenses incurred for maintaining an asset or conducting normal business operations; impacts the profit and loss statement.

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Patent Renewal Fee

Fees paid periodically to maintain the legal rights and protection of a patent.

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Cost of Goods Purchased for Resale

The direct cost of purchasing goods intended for resale to customers.

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Depreciation

An expense that gradually recognizes the reduction in value of a fixed asset over its useful life.

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Deferred Revenue Expenditure

Expenditure initially treated as an asset because it provides benefits over multiple accounting periods.

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Heavy Advertisement Expenditure

Advertising costs that provide benefits beyond the current accounting period.

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Advertisement Expenditure

Spending on ads

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Advertising Campaign (New Product):

An advertising campaign to launch a product

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Capital Receipts

Represented in the Balance Sheet

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Revenue Nature Expenditures and Receipts

Go to Trading or Profit and Loss account

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Sale of Fixed Asset

An example of a revenue receipt

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Capital Expenditure (Accounting)

Affects the balance sheet

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Revenue Expenditure (Accounting)

Affects the profit and loss account

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Embezzled Funds

The amount embezzled by an employee of a business.

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Business Entity Concept

An accounting principle that considers the owner as separate from the business.

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Separate Entity

The owner is separate from the business.

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Dual Aspect Concept

Concept where every transaction has two aspects, a debit and a credit, affecting at least two accounts.

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Equal Dr. and Cr.

Every transaction has equal debits and credits.

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Drawings

Drawings are subjected to interest because of this concept.

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Double Entry

Every transaction has a debit and credit.

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Italy

This concept originated in Italy

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Equal debit and credit

The rule of equal debit and equal credit is the result of this concept.

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Revenue Receipt

A receipt that arises from the normal course of business activities.

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Capital receipts in income statement

Generally considered false as Capital receipts are shown on a balance sheet.

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Sale of fixed assets as revenue

This is generally considered false as a sale is a capital receipt.

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Sale of stock in trade is a capital receipt

This is generally considered false as sale of stock is not a capital receipt.

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Scrap Value

The residual value of an asset after its useful life.

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Scrap Value as a revenue receipt

Money received from the sale of discarded assets.

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Interest on investments received from UTI

Earnings from investments, a normal part of business income.

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Cost Paid to MTNL for telephone instalation

Telephone installation costs are an example of an asset.

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Full Disclosure Concept

Revealing all relevant financial information, even if unfavorable.

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Asset Classification

Dividing assets into long-term (fixed) and short-term (current).

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Liability Classification

Separating liabilities into long-term and short-term debts.

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Accrual Adjustments

Adjusting for revenues and expenses not yet received or paid at period-end.

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Going Concern Concept

The assumption that a business will operate indefinitely.

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Money Measurement Concept

Recording only transactions that can be measured in monetary terms.

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Currency Consistency

Financial statements must use the currency of the reporting country.

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Sundry Expenses

Treating small, miscellaneous expenses as a single line item instead of tracking individually.

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Historical Cost Principle

Showing fixed assets at their original purchase price less depreciation.

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Asset Valuation

Applying the concept of 'Going Concern' when valuing assets.

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Study Notes

  • These study notes cover accounting concepts and principles.

Business Entity Concept

  • This concept asserts that the owner's existence is separate from the business.
  • Separate accounting books are maintained for both the owner and the business.
  • Assets, liabilities, expenses, and income are treated distinctly for each.

Dual Aspect Concept

  • Originates from Italy and was developed by Lucas Pacioli in the 15th century.
  • It establishes that every transaction has equal debit and credit entries.

Full Disclosure Concept

  • Involves fully revealing all relevant information in financial statements.
  • पैसों को पणाांक में बदलना is converting amounts into whole numbers.
  • Calculator purchases are shown as stationery or business expenses.
  • Small expenses are grouped under a sundry expense account instead of creating individual accounts.

Going Concern Concept

  • Assumes that a business will continue operating indefinitely without interruption.
  • States there's no expectation of the business ending in the near future.
  • This allows businesses to show fixed assets at historical cost on the balance sheet.

Money Measurement Concept

  • Only monetary transactions are recorded in accounting.
  • Non-monetary transactions are excluded.
  • The currency used should be that of the country where the financial statements are prepared.

Balance Sheet Items

  • Assets are divided into Fixed Assets and Current Assets.
  • Obligations (liabilities) are categorized as Long-term and Short-term.
  • Adjustments for outstanding, prepaid, accrued, and unearned income are included in the Balance Sheet due to the Full Disclosure Concept.

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