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Expenses

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Question

Answer the question.
State whether the following are revenue or capital transactions.
(a) Carriage paid on goods bought.
(b) Legal expenses paid for illegal use of trade mark.
(c) Capital raised by issue of equity shares.
(d) Allowed discount on issue of shares.
(e) Cost of formation of a new company.
(f) Compensation paid to a discharged employee.

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Solution

(a) Revenue Expenditure (b) Revenue Expenditure (c) Capital Receipt (d) Deferred Revenue Expenditure (e) Capital Expenditure (f) Revenue Expenditure.

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Q. State with reasons whether the following are capital or revenue expenditures:
(i) A new machine is purchased for ₹ 60,000, ₹ 800 were spent on its carriage and ₹ 1,500 were paid as wages for its installation.
(ii) A sum of ₹ 10,000 was spent on painting the new factory.
(iii) ₹ 5,000 paid for the erection of a new machine.
(iv) ₹ 2,000 were spent on repairs before using a second hand generator purchased recently.
(v) ₹ 1,500 were spent on the repair of a machinery.
(vi) ₹ 10,000 was paid as brokerage on issue of shares and other expenses of issue were ₹ 25,000.

Q. State with reasons whether the following are Capital or Revenue Expenses:
(i) Excise duty paid on purchase of new machine.
(ii) Wages paid to install a machine.
(iii) Repairs carried out on existing car.
(iv) Office block of building repainted for ₹ 50,000.
(v) Paid telephone bill ₹ 2,500.

Q. State whether the following expenses are capital or revenue in nature:
(i) Expenses on whitewashing and painting of a building purchased to make it ready for use.
(ii) ₹ 10,000 spent on constructing platform for a new machine.
(iii) Repair expenses of ₹ 25,000 incurred for whitewashing of factory building.
(iv) Insurance premium paid as renewal premium.
(v) Purchased a new car.

Q. Match List-I(Items of expenditure and receipt) with List-II(Nature of expenditure and receipt) and select the correct answer using the codes given the lists.

List-I	List-II
I. Compensation paid to retrenched workers of the factory for the loss of service	(a) Capital expenditure
II. Legal expenses incurred in connection with the purchase of a plot of land	(b) Capital receipt
III. Compensation received from the government for the compulsory removal of a business premises to another place	(c) Revenue expenditure
IV. Sale proceeds of merchandise(goods)	(d) Revenue receipt

Q. State whether the following expenditure are Capital, Revenue or Deferred Revenue. Give reasons:
(i) Furniture of the book value of ₹ 10,000 were sold off at ₹ 2,500 and new furniture of the value of ₹ 6,000 were acquired, cartage on purchase ₹ 50.
(ii) Property purchased for ₹ 20,00,000 and ₹ 1,50,000 paid for its registration and legal fee.
(iii) Replacement of old machine by a new one.
(iv) Damages paid by a transport company to its passengers injured in an accident.
(v) Erection of shed for parking of vehicles at a cost of ₹ 10 Lac.

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