Question

Which of the following expenditures are to be treated as revenue expenditure?
I. Interest paid on money borrowed during construction period
II. Cost of patent rights
III. Loss of uninsured stock due to fire
IV. Retirement gratuity paid to an employee
Select the correct answer using the codes given.

• A. I, II and III
• B. II, III and IV
• C. III and IV
• D. I and II

Answer 1

The correct option is C III and IV

I. Interest paid on money borrowed during construction period- Interest of construction period need to be capitalized, hence it is a capital expenditure.

II. Cost of patent rights

Cost of patent rights is an item of deferred revenue expenditure as the benefits of these will arise in coming years ahead.

III. Loss of uninsured stock due to fire:

Its a loss during the normal course of business hence to be treated as revenue expenditure.

IV. Retirement gratuity paid to an employee:

Its an expense during the normal course of business hence to be treated as revenue expenditure.