Understanding Capital and Revenue Expenses

What is the primary difference between capital expenses and revenue expenses?

• Revenue expenses are for purchasing long-term assets.

• Capital expenses are always higher than revenue expenses.

• Capital expenses are only related to marketing costs.

• The primary difference is that capital expenses are for long-term assets, while revenue expenses are for short-term operational costs.

Select capital expenses.

• Machinery, Real Estate

• Office Supplies, Rent expense

• Inventory, Debtors

• Marketing Costs, Legal expenses

Provide three examples of revenue expenses.

• Salaries and wages

• Cost of a massive ad campaign

• Depreciation costs

• Printing and stationery cost

What is the reducing balance method of depreciation?

• The reducing balance method of depreciation is a method that applies a fixed percentage to the asset's remaining book value to calculate depreciation.

• A method that uses the asset's market value to determine depreciation.

• A method that calculates depreciation based on the original cost of the asset.

• A method that applies a fixed dollar amount for depreciation each year.

How does the reducing balance method differ from straight-line depreciation?

• The reducing balance method is used for land depreciation, while straight-line is for buildings.

• The straight-line method allows for accelerated depreciation in the early years.

• The reducing balance method results in variable depreciation amounts, while the straight-line method results in consistent annual depreciation.

• Both methods result in the same total depreciation over the asset's life.

What impact does depreciation have on a company's profit?

• Depreciation reduces reported profits but does not affect cash flow.

• Depreciation has no impact on reported profits or cash flow.

• Depreciation increases cash flow and profits.

• Depreciation only affects the balance sheet, not profits.

Why is it important to distinguish between capital and revenue expenses?

• To increase the overall profit margin of a company.

• It is important to distinguish between capital and revenue expenses to ensure accurate financial reporting and compliance with tax regulations.

• To simplify the budgeting process for small businesses.

• To reduce the number of financial statements required for reporting.

How does capital expenditure affect the balance sheet?

• Capital expenditure only affects revenue, not the balance sheet.

• Capital expenditure has no impact on cash flow.

• Capital expenditure reduces total assets on the balance sheet.

• Capital expenditure increases assets on the balance sheet and may decrease cash or increase liabilities.

An asset of Rs. 12,00,000 was purchased on 01/04/2023, calculate the depreciation @12.5% on this asset on 31/03/2024 and 31/03/2025.

• 112500, 136000

• 150000, 131250

• 150000, 136000

• 112500, 131250

An asset was purchased on 18.09.2023 for Rs. 10,00,000. Calculate depreciation @ 10% on 31.03.2024 and 31.03.2025

• 46850, 118350

• 53150, 119143

• 46850, 119143

• 53150, 118350