Capital & Revenue

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1. Wages is classified as

(a) Capital expenditure.

(b) Revenue expenditure.

(d) None of the above.

Wages is an example of revenue expenditure. Because, the benefit of this expenditure is exhausted in the period in which it is incurred. Option a,c,d is incorrect.

So, option (b) is right.

2. Amount spent on increasing the seating capacity in a cinema hall is a

(a) Capital expenditure.

(b) Revenue expenditure.

(d) None of the above.

Amount spent on increasing seating capacity in a cinema hall is an example of capital expenditure as it increases the revenue earning capacity the enterprise and its benefit is obtained in more than one year. Option b,c,d is not correct.

So, option (a) is right.

3. Expenditure incurred by a publisher for acquiring copyright is a

(a) Capital expenditure.

(b) Revenue expenditure.

(d) None of the above.

Expenditure incurred by a publisher for acquiring copyrights is capital expenditure, as the publisher will derive the benefit of the copyright over several years. Option b,c,d is not correct.

So, option (a) is correct.

4. An expenditure is a classified as capital expenditure when

(a) The amount is large.

(b) It is shown in the balance sheet.

(d) It benefits only current year.

When benefit of the expenditure is obtained for a number of future years, the expenditure is classified as capital expenditure

Option a,b,d is not correct.

So, (c) is right answer.

5. Share premium is a

(a) Capital receipt.

(b) Revenue receipt.

(d) None of the above.

Share premium is capital receipt. Because, this money received from the activities raising companies Capital. This is not a receipt from normal business activities. So, option b,c,d is not correct

So, option (a) is correct

6. Expenses involved in a change of office, the organization starting costs would constitute a ———– expense.

(a) Capital.

(b) Revenue.

(d) Special Expenditure

Benefits of expenses involved in change of office is likely to be obtained over more than current accounting period. Hence it is considered to be capital expenditure, So, option b,c,d is not correct

So, option (a) is correct

7. Wages paid in the installation of new machinery constitute ———- expenditure.

(a) Capital.

(b) Revenue.

(d) Deferred revenue.

Wages paid in the installation of new machinery is capital expenditure as it is incurred to put the machine into use, which will be used in the business beyond the Financial Year. option b,c,d is not correct

So, option (a) is correct

8. Obsolescence cost should be treated as a ————- charge.

(a) Special.

(b) Deferred revenue.

(d) Capital.

Obsolescence cost should be treated as a revenue charge. Because, this type of expenses is exhausted in the accounting period. So, option a,b,d is not correct

So, option (c) is correct.

9. All expenditure which results in the acquisition of permanent assets used in the business for the purpose of earning revenue is ———– expenditure.

(a) Capital.

(b) Revenue.

(d) Capital Reserve.

Expenditure for acquisition of permanent asset for earning revenue from business is Capital Expenditure. The Permanent Asset will be used in business beyond the financial year. Option b,c,d is not correct

So, option (a) is correct.

10. Any expenditure incurred in enhancing operative economy is known as ———– expenditure.

(a) Revenue.

(b) Capital.

(d) None of the above.

Expenditure incurred in achieving operative economy is capital expenditure as it increases the earning capacity of the business. Option a,c,d is not correct.

So, option (b) is correct.

11. Any expenditure incurred to acquiring the right to carry on a business is ——– expenditure.

(a) Revenue.

(b) Capital.

(d) None of the above.

Expenditure incurred in acquiring the right to carry on a business is capital expenditure, as it is results in increase in earnings. Option a,c,d is not correct.

So, option (b) is correct

12. Amount received from sale of fixed asset is:

(a) Revenue receipt

(b) Capital receipt

(d) None of the above

Amount received from sale of fixed asset is capital receipts, as this type of receipts does not occur from regular business activities. Options (a),(c),(d) are incorrect.

Hence option (b) correct

13. Examples of deferred revenue expenditure

(a) Discount on issue of debenture

(b) Heavy advertisement expenses.

(d) All of the above.

Discount on issue of debenture, Heavy advertisement expenses. Preliminary expenses are all examples of deferred revenue expenditure, as the benefit is received for few years. So, statements in options (a),(b)(c) are all correct.

So, option (d) is correct.

14. Babar is furniture seller. Which is a revenue receipt?

A. Sale of Table displayed for sale in showroom
B. Sale of old office Table used by cashier
C. Additional capital introduced to open a new furniture showroom.
D. Mid-term loan from the bank for working capital purpose.

Sale of Office Table from Inventory is revenue receipt. Sale of Fixed asset (Table used in office) is Capital Receipt. Loans and capital introduced is Capital Receipt. So, option b,c,d is not correct

So, option (a) is correct

15. For a bookshop owner, which of the following item is a capital receipt?

A. receipt of sales commission from the publisher
B. cash discount from a supplier of stationery
C. proceeds from the disposal of old bookshelf
D. cash from sale of notebooks

Sales of Books, Commission received from publisher, Cash discount received are all part of regular receipts in trade for a book seller. Sale of old Bookshelf is Capital Receipt. Option a,b,d is not correct

So, option c is correct

16. A trader sold old office equipment having book value Rs.3500 for Rs.3900. How this transaction is treated ?

a. 3900 Revenue Receipt

b. 3900 Capital Receipt

c. 3500 Revenue Receipt & 400 Capital Receipt

d. 3500 Capital Receipt & 400 Revenue Receipt

Office equipment used for business is a Fixed Asset. Sale proceed of fixed asset at book value is capital receipt and profit on sale of fixed asset is revenue receipt. So, option a,b,c is not correct

So, option d is correct

17. A food vendor sold snacks for Rs.2500 and his used truck for Rs.20,000. How should these receipts be treated?

a. 22500 Revenue Receipt

b. 2500 Capital Receipt & 20000 Revenue Receipt

c. 20000 Capital Receipt & 2500 Revenue Receipt

d. 22500 Capital Receipt

Sale of truck for Rs 20000, which is business asset, is capital receipt. Sale of snacks of Rs 2500 is revenue receipt. So, option a,b,d is not correct

So, option c is correct

18. A trader made Credit sales Rs.50000, sale of the old motor vehicle at book value Rs.10000. How transactions to be classified?

a. 60000 capital Receipt

b. 60000 Revenue Receipt

c. 50000 Revenue Receipt & 10000 Capital Receipt

d. 10000 Revenue Receipt & 50000 Capital Receipt

Sale of trade goods is revenue receipt. Sale of Old Motors vehicle (business Fixed Asset) is capital receipt. So, option a,b,d is not correct

So, option c is correct

19. Lee bought a printer for Rs. 12000 for office use. He also paid for delivery cost of the printer (200), maintenance for one year (1000) and printing paper (300). What would be included in Lee’s P& L statement?

A. delivery cost (200), printing paper (300), maintenance (1000).
B. delivery cost (200), printing paper (300), maintenance (1000), printer (12000).
C. Maintenance (1000), printing paper (300)
D. delivery cost(200), printer (12000).

Delivery cost (200) for acquiring fixed assets is part of the acquisition cost (Capital Expense) of the asset. Maintenance for one year (1000) and cost of paper (300) are revenue expenses to be included in P L Account. So, option a,b,d is not correct

So, option c is correct

20. A business bought a new computer system for office use. Which of the following is treated as revenue expenditure?

A. computer speaker
B. computer Table
C. laser printer cartridge refill
D. laser printer

Computer Speaker, Computer Table, Laser Printer will be used for more than one year. So, these are Capital Expenses. Printer Cartridge will be consumed during the year. So, it is revenue expenses. So, option a,b,d is not correct

So, option c is correct

21. Which of the following are revenue expenditure for an office equipment dealer?

Sales advertisements costs
Warehouse extension costs
Purchase of office equipment for resale
Purchase of delivery vehicle for sales department

A. 1 and 2
B. 1 and 3
C. 2 and 4
D. 3 and 4

Advertisement expenses and purchase of trade goods is revenue expenses, Warehouse extension cost and purchase of delivery vehicle (fixed asset) for business is Capital Expenses. So, option a,c,d is not correct

So, option b is correct

22. Purchase of office furniture was wrongly recorded as repairs to furniture. What is the effect of this error?

A. gross profit is overstated
B. profit for the year is understated
C. non-current assets are overstated
D. current assets are understated

Cost of Fixed Asset (Capital Expenditure) was shown as Repair charges (Revenue Expenditure). So, profit for the year was understated, Cost of Furniture (Non-current Asset) is understated. There is no effect in current asset.

So, option a,c,d is not correct

So, option b is correct

23. A retail trader treated a capital expenditure item as revenue expenditure. What effect will this have on his accounting books?

A. Assets and Liabilities totals will not balance in the statement of financial position.
B. The trial balance will not balance
C. The income statement will show more gross profit for the year
D. The Income statement will show lower profit for the year

When an accounting entry is made, debits and credits are equal. So, Assets & Liabilities arithmetic total & Trial Balance will tally. Income Expenses statement will shows less profit as Expenses is over stated. So, option a,b,c is not correct

So, option d is correct

24. David’s income statement showed a loss Rs.3500. It was later discovered that repairs to motor vehicles, Rs.600, had been debited to motor vehicles. What was the actual loss for the year?

A. Rs.4700
B. Rs.2300
C. Rs.4100
D. Rs.2900

The actual loss would be more by 600 as revenue expenses were was shown in Asset. So, the actual loss would be 3500 + 600 = 4100. So, option a,b,d is not correct

So, option c is correct