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Standard XII
Accountancy
Charge against Profits
Legal expense...
Question

Legal expenses incurred to defend a suit for breach of a contract to supply goods will be treated as___________.

A
capital expenditure
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B
revenue expdenditure
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C
deferred revenue expenditure
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D
none of the above
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Solution

The correct option is B revenue expdenditure
Revenue expenditure: In this case the goods have not been supplied by the business to the customer according to the contract between them. The customer claimed damages which the business paid. It is a usual thing that happens in ordinary course of trading, so it is a revenue expenditure.

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Q. Match List-I(Item of expenditure/receipt) with List-II(Nature of expenditure/receipt) and select the correct answer using the codes given the lists.
List-IList-II
I. Carriage charges a new machine purchased for factory(a) Revenue receipt
II. Legal expenses incurred in defending a case of violation of a provision of Factories Act(b) Revenue expenditure
III. Grant-in-aid received from the Government for the construction of a building(c) Deferred revenue expenditure
IV. Amount received for a part of the office building sublet(d) Capital expenditure
(e) Capital receipt

Q. Treating a revenue expense as a capital expenditure is an example of __________.
Q. Solve.
On 1st June, X contracted to supply V 1000 cubic feet of Finland Timber Rs. 500 per cubic feet to be delivered at Mumbai from 1st July to 30th September. On 15th June, X informs that he could not supply those. goods. The rates of timber per cubic feet on various dates were-on 15th June Rs. 1,200, on, 1St July Rs 1,300, on 30th September RS. 1,400. State the legal position in each of the following alternative cases:
Case (a) If Y filed a suit for breach of contract on 15th June.
Case (b)It Y filed a suit for breach of contract on 30th September
Case (c) If on 29th September the import of such goods was banned and Y filed a suit for breach of contract on 30th September
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. 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.
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