Question

Which one of the following should be considered as 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 a contract to supply certain goods.
• D. Repairs to machinery purchased second hand.

Answer 1

Answer: (C)

Damages paid on account of breach of a contract to supply certain goods.

Damages paid on account of breach of a contract to supply certain goods is a 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 the damages which the business paid. it is a usual thing that happens in ordinary course of trading, therfore it is a revenue expenditure.