Finance and Accounting Quiz

Which of the following is recorded as capital expenditure?

• Payment of monthly electricity bill

• Purchase of a new delivery van expected to last more than 12 months

• Salaries for production staff this month

• Raw materials used in production

Revenue expenditure is normally reported in the:

• Statement of financial position (balance sheet)

• Statement of profit or loss (income statement)

• Cash flow statement under investing activities

• Statement of changes in equity

A non-current asset is defined as one expected to:

• Be consumed within one month

• Last more than 12 months and generate revenue over time

• Be sold within the current trading period only

• Always depreciate to zero within six months

Which scenario is an example of revenue expenditure?

• Buying machinery for long-term use

• Paying this month’s rent on factory premises

• Acquiring land for future expansion

• Purchasing a patent license valid for five years

Capital expenditure typically:

• Immediately reduces profit in full

• Creates or extends a non-current asset on the balance sheet

• Is recorded entirely as an expense in the profit & loss account

• Is only for intangible assets

Over-spending on revenue items may:

• Improve long-term asset base

• Erode short-term profits and reduce available funds for investment

• Get capitalized on the balance sheet

• Increase non-current assets directly

Which best describes “capital” in this context?

• Funds for daily utilities

• Money invested to acquire long-term productive assets

• Cash reserves held idle indefinitely

• Dividends paid to shareholders

A firm needing immediate cash for day-to-day operations is managing its:

• Capital expenditure

• Revenue expenditure

• Financing structure

• Equity issuance

Which statement is correct?

• Capital expenditure is shown as an expense in the income statement in the year incurred.

• Revenue expenditure appears on the balance sheet.

• Capital expenditure appears on the balance sheet as part of non-current assets.

• Revenue expenditure creates a new non-current asset.

Good cash flow and liquidity are crucial because:

• They allow indefinite high revenue spending without concern

• They ensure the business can meet short-term obligations and fund necessary revenue expenditure

• They eliminate the need for capital expenditure planning

• They guarantee high long-term profitability regardless of spending