Question

Fee paid to a lawyer for checking whether all the papers are in order before land is purchased is______ But if later a suit is filed against the purchaser, the legal costs will be_______________.

• A. Capital expenditure, Revenue expenditure
• B. Revenue expenditure, Revenue expenditure
• C. Deferred revenue expenditure, Revenue expenditure
• D. Revenue expenditure, Capital expenditure

Answer 1

Answer: (A)

Capital expenditure, Revenue expenditure

Capital expenditure :-

Money spent by a business or organization on acquiring or maintaining fixed

assets, such as land, buildings, and equipment.

all expenses should be capitalised, which incurred until the process of acquisition of fixed asset not completed.

So here checking the papers of property is a type of expense which incurred during the process of acquisition of land.Therefore this expense fall under capital expenditure.

Generally, legal fees may be currently deductible as ordinary and

necessary business expenses.

This expenditure incurred after the acquisition of land. So this expense can not be capitalised.

So suit filed against the purchaser is revenue expenditure.