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There are two main types of revenue items; (i) revenue expenditure and … A. But the range is wider than that. (i) Free supply of stationery to the students by the government ... Classify the following items into capital and revenue: 1. It is important to correctly differentiate between the two. It is the incomes earned from selling merchandise, or in the form of discount, commission, interest, transfer fees etc. Question: Classify Each Of The Following Items As Belonging In The Revenue, Expenditure, Human Resources/payroll, Production, Or Financing Cycle. For instance, sale of goods, loss may incur. Classify with reasons that which of the above items are capital expenditure and which are revenue expenditure? Giving reasons, classify the following into direct and indirect tax. Revenue expenditure = Shown as an expense in the income statement. a. X-Ray plant purchased by a hospital. Interest received. Such profits are (a) transferred to Capital Account or (b) transferred to Capital Reserve Account. This is often referred to as trade payables. Prohibited Content 3. Capital expenditures are major investments of capital to expand a company's business. (Delhi 2010) (i) Wealth tax (ii) Value added tax It is also defined as items that are considered as long-give assets of a firm or items that occupy the assets section in a balance sheet called Capital Items. Why do accountants have to classify items as capital or revenue expenditures? Rs 50,000 are a capital loss. c. Sale of old sports materials. To a large extent, accounting attempts to resolve these issues by relying upon the statement preparer's subjective judgements. The five account types are: Assets, Liabilities, Equity, Revenue (or Income) and Expenses. Let us learn more about them. mortgages, vehicle loans) 3. 34.Distinguish between revenue receipts and capital receipts. Classify the following items into revenue expenditure and capital expenditure. Revenue Re­ceipts are shown in the Profit and Loss Account. (iii) Transportation paid on machinery purchased. 35. 2. (e) Revenue Expenditure = Wages paid for manufacture of goods is revenue expenditure as it has been incurred connection with the manufacture of goods for resale. Give two examples of each. 2. (c) The cost of removing plant and machinery to new site. Insurance paid for the next year c. Rent revenue earned but not received d. Salaries owed but not yet paid Machinery ii. One obvious case in point is the distinction between the ordinary revenue and capital gain nature of transactions; another is the inter-period allocation of expenditure. discount of Rs 5. (b) The cost of replacement valves on all the labelling machines in a canning factory. All of the following are examples of revenue expenditures: Routine repair/update costs on equipment. Capital Expenditure is an expense made to acquire an asset or improve the capacity of the asset. Revenue Receipts are the amount received in the ordinary course of a business. 4. Copyright 10. Reply. This is a current liability account that shows the amount a company owes for items or services purchased on credit. Bank iii. Privacy Policy 8. (E) Capital Losses: Capital losses occur when selling fixed assets or raising share capital. Definition Revenue Items: Revenue items are those items having short term effects on business, (normally less than one year). The lesson titled Comparing Revenue Expenditure & Capital Expenditures is a great source for more information on this accounting subject. I think it is better to go through this MCQ’s. Capital expenditure = Shown as a non-current asset in the balance sheet. Multiple choice questions (MCQs) Chhavi sharma . Capital items are those items which have long term effects on business, (normally more than one year). STUDY. (f) Revenue Expenditure = Legal costs incurred on debt collection is a revenue expenditure; being incurred to avoid a revenue expense of bad debts. A building purchased for Rs 2, 00,000 is sold for Rs 1, 50,000. cash, computer systems, patents) 2. Syed alfaz . Capital Reserve ap­pears in the Balance Sheet as a liability. Dividends is ; it stockholders' equity. (ii) Carriage paid on goods purchased. Subscriptions received in advance by a magazine publisher. You are given a number of accounts below. Revenue losses arise during the normal course of business. Rs 50,000 are a profit of capital nature. (iv) Octroi duty paid on machinery. The business expenditures are of two types:- Capital expenditures Revenue expenditures Capital expenditures Definition and explanation of capital expenditures: An expenditure is a capital expenditure if the benefit of the expenditure extends to several trading years. Loss on sale of old furniture. 2, 50,000. (All India 2011) Ans.Difference between revenue receipts and capital receipts. Capital receipt and revenue receipt, both are the very important components of accounting. It is not easy to give a correct rule to allocate capital items and revenue items. Fees earned but not yet received. (d) Capital Expenditure = Purchase of business means purchase of its assets and liabilities; therefore, it is a capital expenditure. Examples of revenue and capital expenditures. The proper allocation of capital items and revenue items are important for the fundamental principles of correct accounting. Capital Loss is not shown in the Profit and Loss Account. Salaries paid to staff 4. Flashcards. Nice. An expense is a word very similar to expenditure but expense shows the deduction in the value of the asset while expenditure simply denotes the obtaining of as… Capital and revenue items. For example a land purchased by a business for Rs 2, 00,000 is sold for Rs. Report a Violation, Treatment of Some Typical Items in Fund Flow Statement: 9 Items, Accounting Treatment of Special Items (11 Items), Consignment Transaction at Cost Price Method (Accounting Entries). The following transactions are taken from the books of H. Hanson for the first week of January 2019: (a) Cost of the air-conditioning the office of director. Classify the following accounts into assets, liabilities, equity, expenses or income. capital expenditure and revenue expenditure. Distinguish between capital and revenue expenditures: Classify the following items as either a capital expenditure or a revenue expenditure (an expense) a. Classify each of the following items as belonging in the revenue, expenditure, human resources/payroll, production, or financing cycle. The distinction between the nature of capital and revenue expenditure is important as only capital expenditure is included in the cost of fixed asset. Legal fees paid for assessing title deeds for purchase of building 3. There are two main types of of capital items; (i) capital expenditure and (ii) capital receipt. For example, fixed assets; tangible or intangible assets; (land, building, machinery, legal rights, etc) are capital items. Oil change for the delivery truck: b. 3. So, it is important to classify the Capital and Revenue Items. In order to know the fair performance and financial standing of a business; the nature of business transactions taking place during the year has to be analyzed. (e) Revenue Expenditure = The expenditure is related to purchase of goods for resale, which itself is a revenue expense, therefore, carriage is also a revenue expense. The following are the types of capital and revenue items in accounting: Capital Receipts is the amount received in the form of additional Capital (by issuing shares) loans or by the sale proceeds of any fixed assets. For “Classify the following as direct and indirect taxes”, refer HOTS. Then indicate whether each item increases or decreases stockholders’ equity. Purchase of Building 2. Content Guidelines 2. e. Donation received for constructing a swimming Pool. Capital losses occur when selling fixed assets or raising share capital. Classify the following items as capital or revenue expenditure : (i) An extension of railway tracks in the factory area; (ii) Wages paid to machine operators; (iii) Installation costs of new production machine; (iv) Materials for extensions to foremen’s offices in the factory; (v) Rent paid for the factory; (vi) Payment for computer time to operate a new stores control system; (vii) Wages paid to own employees for building … b. Interest: Balance amount is shown in the Balance Sheet as an asset and it is written off in future years. Assets: tangible and intangible items that the company owns that have value (e.g. Classify each of the following items as owner's drawings, revenue, or expense: a) advertising expense b) service revenue c) insurance expense d) salaries and wages expense e) owner's drawings f) rent revenue g) utilities expense For example, repairs, wages, salaries, fuel, etc., are revenue items. The Questions and Answers of Classify the following items as revenue receipts, revenue expenditure, capital receipts and capital payments? Revenue profits appear in the Profit and Loss Account. are solved by group of students and teacher of Commerce, which is also the largest student community of Commerce. Before publishing your articles on this site, please read the following pages: 1. Fees received but not yet earned. a. Expenses incurred for advertising the company’s product in local newspaper 5. Liabilities: money that the company owes to others (e.g. (d) Capital Expenditure = Amount expended on freight and carriage and installation charges of the new machine into working condition. Revenue Profits are earned in the ordinary course of business. TOS 7. Capital profits are earned as a result of selling some fixed assets or in connection with raising capital for the firm. (D) Revenue Profits: Revenue Profits are earned in the ordinary course of business. Expenditure means spending on something. Revenue items are those items having short term effects on business, (normally less than one year). Classify the following items into revenue expenditure and capital expenditure. Content Filtrations 6. There are two main types of of capital items; (i) capital expenditure and (ii) capital receipt. The amount of discount is a capital loss. Capital Expenditure Capital expenditure includes costs incurred on the acquisition of a fixed asset and any subsequent expenditure that increases the earning capacity of an existing fixed asset. Answer the following questions in depth .... 1. (d) Annual service costs for a … 4. b) The cost of replacement valves on all the labeling machines in a canning factory. The following objectives are covered in this lesson: Cash ix. This amount is utilised for meeting Capital losses. If the loss is manageable, they are debited to Profit and Loss Account of the same year. (b) Economic assistance given according to Ladli scheme. Disclaimer 9. For example, fixed assets; tangible or intangible assets; (land, building, machinery, legal rights, etc) are capital items. Capital and Revenue Items Capital Items: The items which have long term effects on business - generally more than a year. We'll define them briefly and then look at each one in detail: 1. Non-Tax Revenue: Non-Tax revenue refers to receipts of the government from all sources other than those of tax receipts. Rs. (v) Octroi duty paid on goods. It is the process of causing a liability by a commodity. In order to understand them, one should know the correct principles governing the allocation between capital and revenue. The main sources of non-tax revenue are: 1. Classify the following items into capital and Revenue . A two-year premium paid on insurance policy. Cost of goods sold. The accounting transactions may be divided into two categories: (1) Capital transactions (relating to capital items), (2) Revenue transactions (relating to revenue items). Question 4. Capital receipt = Shown as a liability or reduce the value of a capital expenditure. Rent Revenue is ; it stockholders' equity. (g) Legal expenses incurred in purchasing a landed property. Salary owed but not yet paid. State with reasons whether the above items of expenditures are capital or revenue in nature: (a) Capital Expenditure = When a second hand asset is purchased then any expenditure incurred to put it into working order will be treated as capital expenditure. 5. Module 2: Capital & Revenue Expenditure Classify the following expenditure/income into capital and revenue with reasons: 1. 2. Back to: Capital and revenue items (quizzes) Show your love for us by sharing our contents. Advertising Expense is a(n) ; it stockholders' equity. d. Carriage paid on goods purchased. A D V E R T I S E M E N T. 4 Comments on . Income received by selling waste paper, packing cases etc. If capital losses are huge, it is common to spread them over a number of years and a proportionate amount is charged to Profit and Loss Account every year. Sales iv. Purchase raw materials b. Give reason for your answer. Smaller-scale software initiative or subscription. (b) Capital Expenditure = This is a capital expenditure as it is a part of the total cost of the building. Aren't they all exchanges? The following points of difference between capital expenditure and revenue expenditure gives the importance of the distinction: 1. IAS 1 sets out the overall requirements for financial statements, including how they should be structured, the minimum requirements for their content and overriding concepts such as going concern, the accrual basis of accounting and the current/non-current distinction. Classify the following items as either revenue or capital expenditure: a) An extension to an office building costing £24,000. Which of the following expenditures are capital or revenue, give your reasons? An office building costing £24,000 the following items as either revenue or expenditure... Income in income statement net income result of selling some fixed assets or raising share capital ’ s right Profit! 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Expenses are short-term expenses to meet the ongoing operational costs of running a business Questions Answers!: 1 relying upon the statement preparer 's subjective judgements to the students by the government, one know... Machines in a canning factory transactions reflects in the Profit and Loss Account, read! In a canning factory: non-tax revenue refers to receipts of the following pages: 1 ( d capital! A payment is cash or can also be the exchange of some valuable item in exchange for goods services. Are major investments of capital to expand a company owes for items or services a current liability that... The proper allocation of classify the following into capital and revenue items items ; ( i ) Free supply of stationary to the students by government... Transactions reflects in the Profit and Loss Account N T. 4 Comments on plant and machinery new... And teacher of Commerce on freight and carriage and the installation charges the! 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So far, we ’ ve spoken mainly about physical revenue expenditures i think it is shown. Rs 2, 00,000 is sold for Rs 110 each, i.e or in the ordinary course a. Company owes to others ( e.g conversely, revenue ( or income and... For more information on this accounting subject rule to allocate capital items: the items which have term. To the students by the government post transactions and read financial reports, we ’ ve spoken about. Liability Account that shows the amount received in the Profit and Loss Account that which of the face value Rs! For more information on this accounting subject you treat exchanges of similar and dissimilar assets?. Arise during the normal course of business: classify each of the face value of a capital expenditure this! Classify with reasons whether the fallowing items of expenditure are capital expenditure and ii.

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