Capital and Revenue Expenditure Quiz

What is capital expenditure?

• Expenditure incurred in the day-to-day running of the business

• Amount spent by a business to acquire, improve or extend the life of non-current assets

• Income generated from the main operating activities of a business

• Funds received by the business that are not part of its operating activities

Which of the following is included in capital expenditures?

• Salaries and wages

• Upgrading an existing asset

• Rent received

• Purchase of goods and raw materials

What is revenue expenditure?

• Amount spent by a business to acquire, improve or extend the life of non-current assets

• Funds received by the business that are not part of its operating activities

• Expenditure incurred in the day-to-day running of the business

• Income generated from the main operating activities of a business

Which of the following is an example of revenue receipts?

• Restoring an asset to extend its useful life

• Fees received by a service business

• Upgrading an existing asset

• Cost of acquiring intangible assets like patents or goodwill

What happens if capital expenditure is treated as revenue expenditure?

• Profits will be undervalued

• Expenses in the income statement will be overstated

• Assets within the statement of financial position will be undervalued

• Assets in the statement of financial position will be overvalued

Which of the following is a capital receipt?

• Sales revenue received by a trading or manufacturing business

• Fees received by a service business

• Earnings from investment income

• Money received from the sale of a non-current asset

What is the effect of incorrect treatment of expenditure on profits?

• Assets within the statement of financial position will be undervalued

• Profits will be overvalued

• Expenses in the income statement will be overstated

• Profits will be undervalued

When is revenue expenditure charged against profits?

• As soon as it is incurred

• At the end of the financial year

• When the asset is sold

• When the asset is acquired

What should businesses do with the cost of acquiring non-current assets?

• Charge the full cost to profits in the year of purchase

• Spread the cost in the form of depreciation over the years the asset is used

• Include it in revenue receipts

• Treat it as revenue expenditure

Which of the following is an example of capital expenditure?

• Purchase of goods and raw materials

• Salaries and wages

• Adapting an asset to be used differently

• Travelling expenses