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State with re...

Question

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.

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Solution

(1) Capital Expenditure: Paid for the acquisition of new asset

(2) Capital Expenditure: Paid to make the asset ready to use

(3) Revenue Expenditure: Paid for the running and maintenance of car

(4) Revenue Expenditure: Paid for the maintenance of Building

(5) Revenue Expenditure: Part of normal operating cost

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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 ₹ 40,000 was spent on painting the new factory.
(iii) ₹ 6,000 were paid for annual insurance premium.
(iv) ₹ 20,000 were spent on repairs before using a second hand generator purchased recently.
(v) ₹ 5,000 were spent on the repair of a machinery.
(vi) ₹ 50,000 were spent for airconditioning of the office of the manager.

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. Pass the necessary Journal entries to rectify the following errors:
(i) ₹ 15,000 paid as wages for the construction of office building debited to Salaries Account.
(ii) ₹ 20,000 spent on the purchases of material for the construction of building debited to Purchases Account.
(iii) ₹ 50,000 spent on the extension of building was debited to Building Repairs Account.
(iv) ₹ 25,000 spent on whitewash of a new building was charged to Building Repairs Account.
(v) ₹ 1,000 paid as installation charges for newly purchased second hand machinery posted to Cartage Account.
(vi) ₹ 10,000 paid as repairing charges on the reconditioning of a newly purchased second hand machinery debited to General Expenses Account.
(vii) ₹ 5,000 paid as repairing charges of an existing machine in use charged to Machinery Account.
(viii) ₹ 10,000 paid by cheque for a printer was charged to the Office Expense Account.

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. 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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