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Standard XII
Economics
Revenue Budget
Compensation ...
Question

Compensation paid to employees who were retrenched is ______________.

A
Capital Expenditure
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B
Revenue Expenditure
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C
Deferred Revenue Expenditure
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D
Prepaid Expenses
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Solution

The correct option is A Revenue Expenditure
Compensation paid to retrenched employees is revenue expenditure.
These expenditure arise due to normal business operations and these expenditure are not done to acquire fixed assets.

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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-IList-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. 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.
Q.

A firm earns a revenue of Rs.50,000 and the expenses to earn this revenue are Rs.30,000. Calculate its income.

Q. Classify the following into Capital, Revenue and Deferred Revenue expenditure, stating reasons in each case:
(a) A sum of ₹ 32,000 has been spent on a machine as follows: (i) ₹ 20,000 for addition to double the output, (ii) ₹ 5,000 for repairs necessitated by negligence and (iii) ₹ 7,000 for replacement of worn-out parts.
(b) Total expenditure on a cinema building during the year was ₹ 2,00,000 out of which 20% related to repairs and 80% represented improvements and additions.
(c) Compensation paid to a retrenched employee for the loss of employment.
(d) Second-hand furniture worth ₹ 40,000 was purchased and repairing of this furniture cost ₹ 15,000. The furniture was installed by own workmen-wages for this being ₹ 5,000.
(e) A person was injured by the motor car of the company. ₹ 10,000 was paid to him by way of compensation.
(f) Advertisement expenditure in special advertisement drive.
Q. The adjustment entry to write off deferred revenue expenditure is?
Deferred Revenue Expenditure A/c
To Profit & Loss A/c
Dr.
Expense A/c
To Profit & Loss A/c
Dr.
Profit & Loss A/c
To Provision for Expense A/c
Dr.
Profit & Loss A/c
To Deferred Revenue Expenditure A/c
Dr.

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