Question

Which of the following should be considered a revenue expenditure?

• A. $Rs.1,000$ paid for the erection of a new plant.
• B. Cost of $Rs.10,000$ incurred in increasing the sitting accommodation of a hotel.
• C. Damages paid on account of breach of contract to supply certain goods.
• D. Repairs to machinery purchased second hand.

Answer 1

The correct option is C Damages paid on account of breach of contract to supply certain goods.

Any amount spent in the routine course of business are treated as revenue expenditure. Accordingly damages paid on account of breach of contract to supply certain goods is an expense in relation to the normal business operations, hence to be treated as revenue expenditure.

Rest items are of capital nature and to be considered as capital expenditure.