Chapter 5b. Capital and Revenue – Expenditures and Receipts – Financial Accounting

Chapter 5b

Capital and Revenue — Expenditures and Receipts

LEARNING OBJECTIVES

At the end of the chapter, you will be able to understand

  1. What a Capital Expenditure Is

  2. The Meaning and Features of Revenue Expenditure

  3. Deferred Revenue Expenditure

  4. Some of the Revenue Expenditures to be Treated as Capital Expenditures

  5. The Distinction Between Capital and Revenue Expenditures with Reasons

  6. To Classify the Transactions into Capital and Revenue Expenditures with Reasons

  7. Concepts of Capital and Revenue Receipts

  8. To Classify Transactions into Capital or Revenue Receipt

  9. The Following Terms – Capitalised Expenditure, Capital Profit and Revenue Profit, Capital and Revenue Loss, Capital and Revenue Payments

OBJECTIVE 1: MEANING OF CAPITAL EXPENDITURE AND EXAMPLES

The amount spent either to acquire assets or to avail services or on day-to-day activities of a business enterprise is generally called as expenditure.

An expenditure may be said to be a capital expenditure if it fulfils any of the following characteristics:

  • Purchase of permanent asset or fixed asset.
  • That asset is for use in business and not for immediate resale.
  • It should have an enduring benefit.
  • Purchase may be for the improvement of the existing asset or additions or extension in order to increase the earning capacity of the business.

1.1 Examples

  1. All tangible fixed assets such as plant and machinery, land, building, motor vehicles, equipments, furniture, fixtures and fittings, legal expenses, registration charges, delivery expenses of assets, installation expenses for erection of machinery and the like are a few examples that fall under this category.
  2. Intangible assets such as goodwill, patents, trademarks, copyrights and so on.
  3. Investment in shares and debentures of companies.
  4. Cost of financing like interest earned on advances to fixed assets till they are put into use.

In general, the benefit from such expenditure lasts long, usually for more than one or two accounting periods.

OBJECTIVE 2: MEANING AND FEATURES OF REVENUE EXPENDITURE

An expenditure may be said to be a revenue expenditure if it fulfils any of the following characteristics:

  • Expenses relating to maintain fixed assets.
  • Expenses occurring in normal day-to-day activities of business enterprises.
  • To maintain productivity and earning capacity (and not to increase) of firms.

2.1 Examples

  1. The cost of materials used in manufacture of goods for resale.
  2. All establishment expenses such as rent, rates, electricity (heat and light) and repairs to existing assets.
  3. Administrative expenses like salaries, wages, rent, insurance, printing, stationery, telephone, fax services and so on.
  4. Selling and distribution expenses like advertising, carriage outward, commission, traveling expenses and all sales promotion expenses.
  5. Non-operating expenses and losses — financial costs — such as interest on loan, cash discount, loss by fire and so on.

In general, revenue expenditure yields benefit for the current accounting period only.

OBJECTIVE 3: DEFERRED REVENUE EXPENDITURE

Certain expenditures that are of revenue in nature basically, but the benefit derived by such expenditures may extend beyond the current accounting year, may be referred to as “deferred revenue expenditure.” Such expenses are carried forward to a few accounting periods till it yields benefit. The amount that is carried forward is to be treated as capital expenditure in the current accounting period whereas that portion of amount which is not carried forward is to be treated as revenue expenditure. For example, advertisement (large amount), research and development expenditure, prepaid expenses, formation of a company, expenses incurred for issue of shares, debentures and so on. To illustrate, a business entity spends Rs 5,00,000 for advertisement in the year 2009 and it is estimated that the benefit from that expenditure will spread for the next five years. Then the amount spent is divided by the number of years that it can expect the benefit i.e, Rs 5,00,000 ÷ 5 years = Rs 1,00,000. This part Rs 1,00,000 is to be debited to Profit and Loss Account and the remaining part Rs 4,00,000 will be shown as an asset in the Balance Sheet. This is to be repeated every year till the entire amount is completely written off. This type of asset is called as fictious asset, as it is not an asset in real accounting principles.

OBJECTIVE 4: REVENUE EXPENDITURE: TO BE TREATED AS CAPITAL EXPENDITURES

Some of the revenue expenditures may acquire the status of capital expenditures due to the nature of transactions that occur and are as follows:

1. Wages: In general, the item “wages” is treated as revenue expenditure, but under certain situations it is not to be treated as revenue. For example, wages paid to erect a new machine has to be added to the cost of that new machine, thereby treating it as a capital expenditure. Like that wages paid to workers associated with construction activities such as building factory, bridges and the like have to be added to the respective assets and they have to be treated as capital expenditure.

2. Transport: Cost of transport i.e, delivery of a machine (new or second hand) to the business premises is to be treated as capital expenditure.

3. Raw Materials and Stores: Consumed in the manufacture of fixed assets in construction business also have to be treated as capital expenditure.

4. Legal Expenses: Incurred are also a capital expenditure.

5. Repairs: Generally and in normal course they are of revenue nature. But when the second hand machinery is made operative for the first time, repair is a capital expenditure under such occasion.

6. Development Expenses: In certain area of operations, a lot has to be spent in order to bring them into productive stage. For example, all plantation units (coffee, tea, rubber) and mining. Such heavy expenses incurred heavily at the initial stage are to be treated as capital expenditures.

7. Interest on Capital: A capital expenditure.

Depending on the amount that was spent and the yield or benefit that we get from the amount spent is the basis for determining the type of expenditure whether it is capital or revenue.

OBJECTIVE 5: DISTINCTION BETWEEN CAPITAL EXPENDITURE AND REVENUE EXPENDITURE

Capital expenditure differs from revenue expenditure in the following aspects:

 

Differences between Capital Expenditure and Revenue Expenditure

Basis of Distinction Capital Expenditure Revenue Expenditure

1. Earning capacity

Capital expenditures add to the revenue earning capacity of a business

But these do not add the revenue earning capacity of enterprises

2. Nature of spending

Amount is spent to acquire a fixed asset

Amount is spent to maintain the working condition of fixed assets

3. Value addition

Value of an existing asset may get enhanced by way of capital expenditure

It is not so in this case

4. Nature of depiction

Capital expenditure is shown in Balance Sheet

Revenue expenditure is shown in Trading Account or Profit and Loss Account

Illustration: 1

Classify the following into capital and revenue expenditure by stating reasons for your classification:

  1. Rs 7,500 spent for additions to the existing machinery.
  2. Rs 5,000 incurred on transport cost in delivering a new machine to the business site.
  3. Rs 500 paid for wages to install that new machine.
  4. An old machine of book value Rs 15,000 (is of no more use) has become obsolete, removed at a cost of Rs 1,000 and its scrap realised at Rs 800.
  5. A second hand machine was purchased for Rs 9,000 and spent Rs 1,000 for repairs to make it usable immediately.

Solution

  1. Any additions made to an existing asset are to be treated as capital expenditure and such expenses would increase the earning capacity.
  2. Capital expenditure. Transport cost forms part of that fixed asset. Hence this cost has to be added to the respective fixed asset.
  3. Capital expenditure. Wages are paid to put the asset into use. Upto that point, any expenditure is of capital nature.
  4. An old machine of book value Rs 15,000 — Rs 800 (scrap value) with dismantled charges of Rs 1,000 is revenue expenditure.

    The amount realised from the scrap is capital receipt.

  5. Capital expenditure. Machinery purchased whether new or second hand is to be treated as capital expenditure. Amount spent for its repairs is also capital expenditure because any amount spent to make the fixed assets ready for use is of capital nature.

Illustration: 2

Classify the following into capital and revenue expenditure by stating reasons:

  1. Employees State Insurance premium paid Rs 750.
  2. Cost of cleaning, leveling and ploughing to plant coffee plant.
  3. Premium paid for a lease Rs 5,000.
  4. Rs 4,000 spent on painting the factory.
  5. Repair Rs 1,500 occurred due to the negligence of the foreman.
  6. Compensation paid on account of breach of contract to acquire raw material.
  7. A cine projector was replaced with a new one having the latest digital features for audio effect.
  8. Rs 25,000 was spent as lawyer’s fee to defend a suit, but it was not successful.
  9. Insurance claim of Rs 7,500 received from an insurance company for loss of goods by fire for Rs 10,000.
  10. Canal irrigation charges paid to the government.

Solution

  1. It occurs on the ordinary course of business operation. It is a normal business expense. Hence it is revenue expenditure.
  2. This cost is incurred for making the land ready for use. Hence it is capital expenditure.
  3. Capital expenditure as leasehold property is a fixed asset.
  4. It is revenue expenditure since painting will not yield any additional revenue. It is done to maintain fixed assets.
  5. Revenue expenditure. It will maintain the existing capacity and there will be no increase in revenue due to the amount spent on it.
  6. Revenue expenditure. It occurs in the ordinary course of business.
  7. Capital expenditure. It will attract more number of audiences which will result in an increase in the revenue earning.
  8. Revenue expenditure. Legal suits occur in the normal course of any business. It occurs for the upkeep of firm and the result of the suit is immaterial here.
  9. Revenue expenditure. Loss due to fire Rs 10,000 — Rs 7,500 = Rs 2,500 is revenue loss.
  10. Revenue expenditure. It occurs for the upkeep of crops.

Illustration: 3

State with reasons whether the following transactions are capital or revenue expenditure.

  1. Cost of pulling down an old building for raising a new one in its place.
  2. Rs 1,000 was spent to remove a worn out part and fix a new part.
  3. Rs 3,00,000 spent in advertisement, the benefit will spread over the next 5–6 years.
  4. Interest on a term loan for purchase of machinery.
    1. production has not yet begun,
    2. production has already begun.
  5. Legal expenses incurred in
    1. raising a debenture loan,
    2. purchasing a land for business expansion,
    3. incurred in a Tax Tribunal.
  6. Heavy expenditure on research of a particular product to be introduced.

Solution

  1. Capital expenditure. It will form part of cost of the new building, a fixed asset.
  2. Revenue expenditure. It is spent to maintain the fixed assets and it is in the normal course of business.
  3. Deferred revenue expenditure. Only a part has to be treated in Profit and Loss Account and the remaining part in the Balance Sheet as asset. This is repeated every year till it is completely written off.
    1. Capital expenditure as the production has not yet begun and it is not put into use.
    2. Revenue expenditure since it was put into use and the production has already begun.
    1. Capital expenditure because the expenses related to secure capital for business. It may be classified as deferred revenue expenditure.
    2. Capital expenditure as expenses incurred relating to fixed asset.
    3. Revenue expenditure because the expenses are incurred in the normal course of business.
OBJECTIVE 6: CAPITAL AND REVENUE RECEIPTS

Contributions to a business enterprise made by a proprietor in the case of sole trader, partners in case of partnership firms, shareholders in case of joint stock company as the capital of the concerns are capital receipts. Loan from third parties, sale of any fixed assets of a business, funds raised by way of debentures are also capital receipts.

Incomes that arise due to the desired results of intense activities in a business enterprise are revenue receipts, such as sales revenue, commission and discount received, interest and dividend received, interest on investments and the like.

In practice, it is a difficult task to classify a receipt into capital or revenue. But the following generalized guidelines may be of much use to demarcate the nature of receipt whether it is capital or revenue.

6.1 Concepts of Capital and Revenue Receipts

  1. The nature of receipt may be a deciding factor. It depends on the person who receives it.
  2. The nature of transaction facilitates the task of classification. For example, shares held as an investment – receipt on sale of such shares is capital receipt.

    If they are held for (speculative purpose) trading, their receipt on such sale is “Revenue Receipt”.

  3. Nature and characteristic feature of assets themselves determine the category whether capital or revenue.
    1. Sale of fixed assets is a capital receipt.
    2. Sale of goods (inventories) is a revenue receipt.
  4. Receipt in lieu of source of income is a capital receipt. Compensation received due to inability caused by an accident in the factory is a capital receipt.
  5. Any acquisition of assets by way of legislation and such receipts in the hands of the owners is capital receipt.
  6. Sale of agricultural land is a capital receipt but production value from agriculture land is a revenue receipt.

Illustration: 4:

Classify the following into capital or revenue receipt:

  1. Sale of shares by an investor held for an investment purpose.
  2. Dividends received by such investors.
  3. Sale of fixed assets (book value Rs 10,000) for Rs 12,000.
  4. Sale of old machine (book value of Rs 10,000) for Rs 8,000.
  5. Sale of inventories Rs 12,500.
  6. Interest received on loan advanced to a business proprietor who in turn invested in purchase of fixed assets.

Solution

  1. Capital receipt since it is a sale of fixed asset, and that too exclusively held as an investment.
  2. Dividends received are revenue receipt.
  3. Any receipt by way of sale of fixed assets is a capital receipt, but the difference (Sale – Book value) Rs 2,000 is treated as profit on sale and is to be transferred to Profit and Loss Account.
  4. Sale of an old machine – here a loss of Rs 2,000 is to be treated as revenue loss and has to be transferred to Profit and Loss Account, while the sale value of Rs 8,000 is a capital receipt.
  5. Sale of inventories is a revenue receipt.
  6. Interest received on loan is a revenue receipt.
OBJECTIVE 7: MEANING OF CAPITALISED EXPENDITURE

Expenditures, which are incurred at times in the business enterprises, are added to the cost of assets, services provided for, or in the course of business activities. Such expenditures are termed as capitalized expenditures. For example, as already explained wages on installation of plant and machinery are not treated separately but included along with the cost of such assets and are treated as capital expenditure. Similarly in the formation of companies, initial expenses incurred are treated as capital expenditure. Also, the cost of issuing shares includes legal expenses and under-writing expense. This procedure of clubbing the cost along with its main component is called capitalisation of expenditure.

OBJECTIVE 8: CAPITAL PROFIT AND REVENUE PROFIT

8.1 Concepts of Capital Profit and Revenue Profit

The profit that arises on the sale of fixed assets is called capital profit. When a fixed asset bought for Rs 2,00,000 is sold for Rs 3,00,000 the profit on sale of such fixed assets is capital profit.

Similarly when shares are sold at a higher price, such profit may also be termed as capital profit.

When shares are issued at premium, such premium is also a capital receipt.

Profits earned from sources other than fixed assets and which are earned in the normal course of business are called revenue profits.

Sale of goods costing Rs 50,000 for Rs 75,000, the difference Rs 25,000 is a revenue profit.

OBJECTIVE 9: CAPITAL AND REVENUE LOSSES

Losses incurred in the normal course of business may be treated as revenue losses. For example, loss of stock due to natural calamities like flood, fire, any type of accident, theft, misappropriation and so on.

Any loss which cannot be classified as revenue loss may be treated as capital loss.

9.1 Capital and Revenue Payments

Expenditure differs from payment. Expenditures represent the full amount actually incurred whether fully paid or partly paid or total amount yet outstanding while payments refer to the amount that has been paid actually.

A generator set is purchased for Rs 70,000, paying Rs 20,000 immediately and the balance amount Rs 50,000 on a later date. Rs 70,000 is a capital expenditure (the full amount of generator set) and Rs 20,000 is a capital payment (amount actually paid).

Similarly, if goods are purchased for Rs 12,000 by paying Rs 2,000 in cash immediately and Rs 10,000 on credit to be paid on a later date, Rs 12,000 is revenue expenditure and Rs 2,000 paid immediately is revenue payment.

To put it in nutshell:

  1. Capital payment represents an amount actually paid on capital expenditure.
  2. Revenue payment represents an amount actually paid on revenue expenditure.

Summary

  • Capital expenditure is an expenditure which fulfils any of the following characteristics: (i) purchase of fixed assets, (ii) that for use in business and not for immediate resale, (iii) it should have an enduring benefit and (iv) to improve the earning capacity of the business.
  • Revenue expenditure is an expenditure which fulfils any of the following characteristics: (i) expenses for maintenance of fixed assets, (ii) to maintain productivity, (iii) to maintain earning capacity (not to increase) and (iv) normal day-to-day expenses.
  • Deferred revenue expenditure: Expenditure that are of revenue in nature but the benefits derived due to them may extend for more than one accounting period. For example, heavy advertisement expenses, R & D expenditures and company formation expenses.
  • Some of the revenue expenditures are to be treated as capital expenditure: wages paid to erect a machine, wages paid to workers engaged in construction activities, cost of delivery of a machine, raw materials and stores consumed in the manufacture of fixed assets, construction business, legal expenses, second hand machineries put into use and interest on capital.
  • Classification of transactions into capital and revenue expenditure (refer Illustrations 13).
  • Capital and revenue receipts: Classification depends on (i) the nature of receipt the person who receives it, (2) the nature of transaction and (3) characteristic features of assets.
  • Classification of capital or revenue receipt (refer Illustration 4).
  • Capitalised expenditures are expenditures added to the cost of assets or services provided for.
  • Capital profits: Profits on sale of fixed assets, shares sold at higher prices and shares issued at premium.
  • Revenue profits: Profits earned in the normal course of the business are revenue profits.
  • Capital and revenue losses: Losses occurred in the normal course of the business are revenue losses and losses that cannot be classified as revenue losses are to be treated as capital losses.

Key Terms

Capital Expenditure: Cost incurred to acquire permanent or fixed assets, the benefit from which is spread over several accounting periods. Such fixed assets are for use in business and not intended for resale.

Deferred Revenue Expenditures: Expenditures that are revenue in nature but the benefit from which is spread over many accounting periods.

Intangible Assets: Non-physical but highly valuable resources owned by business entities e.g., good-will, patents and copyrights.

Revenue Expenditure: Costs incurred on materials and services and on maintenance of fixed assets. They occur in normal course of business activities, the benefit from which is exhausted in that accounting year itself.

Capitalised Expenditure: Expenditure incurred on assets (e.g., installation, construction, increase in earning capacity) not written off against the revenue of the current year. Instead they are added to the cost of the asset.

References

 

S.P. Jain and K.L.Narang, “Financial Accounting,” Kalyan Publishers, New Delhi, 2004.

“Compendium of Statements and Standards of Accounting,” ICAI, New Delhi.

A Objective-type Questions

 

I. State whether the following statements are true or false

  1. Capital expenditure is money spent on purchase of fixed assets for immediate resale.
  2. Fixtures and fittings are intangible assets.
  3. Copyrights belong to intangible assets.
  4. Legal expenses incurred in connection with the purchase of property are revenue expenditures.
  5. Interest paid on a loan to purchase a fixed asset is also a capital expenditure.
  6. The direct benefit of revenue expenditure is usually exhausted in the accounting period itself.
  7. The cost of raw materials used in the manufacture of goods intended for resale is capital expenditure.
  8. All expenses incurred for upkeep of fixed assets are capital expenditure.
  9. Capital expenditure may result in enhancement of the value of an existing asset.
  10. Capital expenditure is transferred to trading and profit and loss account.
  11. The money spent on repairs of a second hand machine is capital expenditure.
  12. Prepaid expense is a capital expenditure.
  13. Preliminary expenses incurred on the formation of a limited company are deferred revenue expenditure.
  14. Any contributions to the capital of the business are capital receipts.
  15. Sale of inventories is a capital receipt.

Answers

 

1. False

2. False

3. True

4. False

5. True

6. True

7. False

8. False

9. True

10. False

11. True

12. False

13. True

14. True

15. False

 

II. Fill in the blanks with appropriate word(s)

  1. Expenditures which results in the acquisition of a permanent asset is a __________expenditure.
  2. Amounts written off from the cost of fixed assets is __________ expenditure.
  3. Wages paid for the erection of machinery is a __________ expenditure.
  4. Amount spent on acquiring goodwill is a __________ expenditure.
  5. Amount spent to put second hand machinery in working condition is a __________ expenditure.
  6. Amount spent for replacement of part of a machine is __________ expenditure.
  7. Expenses incurred on whitewashing the factory premises at regular intervals are __________ expenditure.
  8. Heavy advertising to introduce a new product is __________ .
  9. Travelling expenses of Rs 30,000 paid to a technician for the erection of a new machine is __________ expenditure.
  10. Expenses incurred on consultancy service are __________ expenditure.
  11. Wages paid to workers for manufacturing a part of its plant are __________ expenditure.
  12. Temporary shed put up in the factory premises to store finished product is __________ expenditure.
  13. Gain on sale of fixed assets is treated as __________
  14. Assets minus liabilities is equal to __________
  15. Any expenditure incurred to reap benefit for a few accounting periods in future is called __________ expenditure.

Answers

  1. capital
  2. revenue
  3. capital
  4. capital
  5. capital
  6. revenue
  7. revenue
  8. deferred revenue expenditure
  9. capital
  10. deferred revenue expenditure
  11. capital
  12. capital
  13. revenue receipt
  14. capital
  15. deferred revenue expenditure.

B Short Answer-type Questions

  1. What do you mean by capital expenditure?
  2. Mention the four categories of capital expenditure.
  3. What is meant by revenue expenditure?
  4. Give four examples of revenue expenditure.
  5. Mention any two types of revenue expenditures which become capital expenditure depending on the nature of transaction.
  6. What is capitalised expenditure?
  7. Briefly explain capital profit and revenue profit.
  8. Briefly explain capital loss and revenue loss.
  9. What is meant by capital payment and revenue payment?

C Essay-type Questions

  1. What is capital expenditure? Explain with examples. What is revenue expenditure? Explain with examples. Distinguish between capital expenditure and revenue expenditure.
  2. Explain with suitable examples of various types of revenue expenditures which will become capital expenditures depending upon the nature of transactions.
  3. What is meant by deferred revenue expenditure? Discuss its salient features with suitable examples.
  4. How will you determine whether a receipt is capital or revenue with suitable illustrations?

D Exercises

 

1. How would you classify the following? State reasons, if necessary.

  1. Freight and cartage on the new machine Rs 700.
  2. Erection charges of machine Rs 1,300.
  3. A sum of Rs 2,000 was spent on painting the factory.
  4. Fixtures of the book value of Rs 2,200 were sold off at Rs 1,600.
  5. New fixtures of the value of Rs 3,000 were acquired, cartage on purchase Rs 300.

    Answers

    1. Capital expenditure
    2. Capital expenditure
    3. Revenue expenditure
    4. Loss: Rs 2,200 – 1,600: Rs 600 – revenue expenditure
    5. Rs 3,000 + 300 – capital expenditure.

2. How would you classify the following?

  1. Overhauling expenses of Rs 30,000 for the engine of a motor car to get better fuel efficiency.
  2. Inauguration expenses of Rs 1,50,000 incurred on the opening of a new production unit in the existing business.
  3. Compensation of Rs 1 crore paid to workers who opted for voluntary retirement.

    Answers

    1. Capital expenditure
    2. Revenue expenditure
    3. Revenue expenditure

3. Classify the following:

  1. Rs 3,250 spent on repairs on a second hand machine purchased recently to put it in usable and working condition.
  2. Plant and machinery which stood in the books at Rs 30,000 included a machine at a book value of Rs 1,000. This being obsolete was sold off at Rs 400 and was replaced by a new machine costing Rs 2,000.
  3. Wages Rs 6,000 paid to non-technical staff of a factory.
  4. A sum of Rs 7,50,000 was spent on research and development which resulted in the introduction of modified product.
  5. A sum of Rs 7,000 was spent on dismantling, removing and installing new fixtures in the factory.

    Answers

    1. Capital expenditure
    2. Capital expenditure
    3. Capital expenditure
    4. Deferred revenue expenditure
    5. Capital expenditure

4. Classify the following transactions:

  1. Imported goods worth Rs 5,00,000 confiscated by customs authorities for not complying with statutory provision.
  2. Expenditure incurred on the technical staff for providing a short-term course in Germany Rs 2,00,000.
  3. Replacement of an ordinary tempo with closed and refrigerated facilities.
  4. Heavy legal expenses incurred to get a clear title for the factory land purchased.

    Answers

    1. Revenue expenditure
    2. Capital expenditure
    3. Capital expenditure
    4. Revenue expenditure

5. How would you classify the following?

  1. Cost of acquisition of a copyright.
  2. Compensation received from Civil Aviation Authority for compulsory acquisition of land for expansion of airport.
  3. Rs 5,000 received from parents and grandparents as gift on wedding day which occurs every year.
  4. Cost of designing a new product which could not be marketed.

    Answers

    1. Capital expenditure
    2. Capital receipt
    3. Capital receipt
    4. Deferred revenue expenditure.

6. How would you classify the following?

  1. Cost of alteration of factory building in accordance with the latest guidelines issued by the government.
  2. Amount received from son staying abroad.
  3. Premium given for a lease.
  4. Rs 7,500 paid as import duty on raw materials purchased.
  5. Rs 17,000 paid as customs duty on import of a machine.

    Answers

    1. Revenue expenditure
    2. Capital Receipt
    3. Capital
    4. Revenue expenditure
    5. Capital expenditure

7. Classify the following.

  1. Contribution to Municipal Corporation for road development.
  2. Workmen compensation paid for terminating an employee.
  3. Commission on issue of debentures.
  4. Travelling expenses of a director for going to Korea to purchase a new machinery.

    Answers

    1. Revenue expenditure
    2. Revenue expenditure
    3. Capital expenditure
    4. Capital expenditure

8. Classify the following transactions.

  1. Carriage inward and freight for bringing the fixtures to the factory premise.
  2. Accrued interest on investment.
  3. Rs 7,000 interest accrued on loan obtained to purchase a new machinery.
  4. The cost of removing a machinery from an old factory to the new amounted to Rs 5,000.

    Answers

    1. Capital expenditure
    2. Revenue expenditure
    3. Capital expenditure
    4. Revenue expenditure