Capital and Revenue Expenditure and Receipts

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

1. Sales promotion costs

2. Warehouse extension cost

3. Purchase of office equipment for resale

4. Purchase of delivery vehicle for sales department

• 1 & 2

• 1 & 3

• 2 & 4

• 3 & 4

Answer explanation

revenue expenditure is a day to day basis expenses to operate your business.

therefore, promotion is the expenses you spend to help your business

and purchasing for resale is also the expenses you spend to help the business by increasing your revenue.

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

• Gross Profit is overstated

• Profit for the year is understated

• non-current assets are overstated

• current assets are understated

Answer explanation

purchase of office furniture is a capital expenditure.

if it was wrongly treated as revenue expenditure (expenses in income statement), it will cause a decrease in profit for the year. - PFTY understated (kekurangan)

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

• Assets and liabilities totals will not balance in the statement of financial position

• The trial balance will not balance

• The income statement will show a more gross profit for the year

• The income statement will show a lower profit for the year

Answer explanation

revenue expenditure is expenses in income statement.

therefore, when CE was treated as RE, the expenses increase and the PFTY will decrease.

more expenses, lower profit for the year.

David's income statement showed a loss for the year of $3,500. It was later discovered that repairs to motor vehicles, $600, had been debited to motor vehicle. What was the actual loss for the year?

• $4 700

• $2 300

• $4 100

• $2 900

Answer explanation

Revenue expenditure recorded as capital expenditure.

Loss for the year: ($3 500).

Extra expenses: $600

Therefore: (-3500) - 600

: (4100)

A computer system cost $9 050. The price included $50 for cartridge refill. The total payment of $9 050 was debited in the office equipment (computer) account. What is the effect of this error on the income statement and statement of financial position?

• profit for the year AND non current assets overstated by $50

• Profit for the year overstated by $50, non current assets understated by $50

• Profit for the year understated by $50, non current assets overstated by $50

• Profit for the year AND non current assets understated by $50

Answer explanation

cartridge refill is ink for printer. you need to keep on refilling this - revenue expenditure.

therefore RE wrongly treated as CE, PFTY overstated and Non current assets overstated too.