classify the following into capital and revenue items

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Question: Classify Each Of The Following Items As Belonging In The Revenue, Expenditure, Human Resources/payroll, Production, Or Financing Cycle. 5. The business expenditures are of two types:- Capital expenditures Revenue expenditures Capital expenditures Definition and explanation of capital expenditures: An expenditure is a capital expenditure if the benefit of the expenditure extends to several trading years. Flashcards. Expenses incurred for advertising the company’s product in local newspaper 5. Classification of these transactions reflects in the final statements of the company. Question 4. Interest Received x. Mohan (Proprietor) Solution: Question 6. According to modern approach, the accounts are classified as asset accounts, liability accounts, capital or owner’s equity accounts, withdrawal accounts, revenue/income accounts and expense accounts. Capital Receipts are shown in Balance Sheet. (b) Wages paid to business’ workers for extension of its building. Cost of goods sold. Giving reasons, classify the following into direct and indirect tax. This is a current liability account that shows the amount a company owes for items or services purchased on credit. 50,000 spent for railway siding. Why do you treat exchanges of similar and dissimilar assets differently? Cash received for services not yet rendered b. Assets: tangible and intangible items that the company owns that have value (e.g. Rs. Nice. 2. Rs 50,000 are a profit of capital nature. Purchases v. Unsold Stock vi. 35. There are two main types of of capital items; (i) capital expenditure and (ii) capital receipt. Rs 10 is capital profit. (c) Repairs to the warehouse roof. Revenue receipt = Shown as income in income statement. (c) The cost of removing plant and machinery to new site. (All India 2011) Ans.Difference between revenue receipts and capital receipts. (E) Capital Losses: Capital losses occur when selling fixed assets or raising share capital. In order to know the fair performance and financial standing of a business; the nature of business transactions taking place during the year has to be analyzed. (c) Expenditure incurred on renewal of patent’s right. Income received by selling waste paper, packing cases etc. (b) Capital Expenditure = The wages paid to workmen employed for extension of building is a capital expenditure, because wages have been incurred in extension of a non-current asset. 34.Distinguish between revenue receipts and capital receipts. In order to understand them, one should know the correct principles governing the allocation between capital and revenue. Classify the following items into capital and Revenue . (f) Revenue Expenditure = Legal costs incurred on debt collection is a revenue expenditure; being incurred to avoid a revenue expense of bad debts. Revenue items are those items having short term effects on business, (normally less than one year). Expenditure means spending on something. Capital expenditure = Shown as a non-current asset in the balance sheet. Smaller-scale software initiative or subscription. Report a Violation, Treatment of Some Typical Items in Fund Flow Statement: 9 Items, Accounting Treatment of Special Items (11 Items), Consignment Transaction at Cost Price Method (Accounting Entries). They are shown in the asset side of Balance Sheet. Purchase of Building 2. Loss on sale of old furniture. Definition Revenue Items: Revenue items are those items having short term effects on business, (normally less than one year). Revenue expenses are short-term expenses to meet the ongoing operational costs of running a business. Classify with reasons that which of the above items are capital expenditure and which are revenue expenditure? Cash ix. Purchase Raw Materials B. Sales iv. is also a revenue receipt. Interest received. Capital Reserve ap­pears in the Balance Sheet as a liability. (e) Revenue Expenditure = The expenditure is related to purchase of goods for resale, which itself is a revenue expense, therefore, carriage is also a revenue expense. The proper allocation of capital items and revenue items are important for the fundamental principles of correct accounting. Capital Expenditure is an expense made to acquire an asset or improve the capacity of the asset. Purchase raw materials b. Revenue expenditure = Shown as an expense in the income statement. It is not easy to give a correct rule to allocate capital items and revenue items. Content Guidelines 2. Bank iii. Find out which are Assets, Liabilities, Capital, Revenue or Expense Accounts: i. (d) Payment made to purchase an existing business. The accounting transactions may be divided into two categories: (1) Capital transactions (relating to capital items), (2) Revenue transactions (relating to revenue items). discount of Rs 5. (c) Capital Expenditure = The removal of the business to the new site will enhance the income earning capacity of the business; this expense will be treated as capital expenditure. Which of the following expenditures are capital or revenue, give your reasons? Classify each of the following items according to (1) whether it belongs on the income statement (IS) or balance sheet (BS) and (2) whether it is a revenue (R), expense (E), asset (A), liability (L), or stockholders' equity (SE) item Capital Stock For example, repairs, wages, salaries, fuel, etc., are revenue items. Revenue Profits are earned in the ordinary course of business. Revenue profits appear in the Profit and Loss Account. Classify the following items into revenue expenditure and capital expenditure. To a large extent, accounting attempts to resolve these issues by relying upon the statement preparer's subjective judgements. Revenue losses arise during the normal course of business. Examples of revenue and capital expenditures. This is often referred to as trade payables. For example, profit from sale of goods, income from investments, discount received, Interest Earned etc. Capital Loss is not shown in the Profit and Loss Account. Shares of the face value of Rs 100 issued at Rs 95, i.e. Insurance paid for the next year c. Rent revenue earned but not received d. Salaries owed but not yet paid b. All of the following are examples of revenue expenditures: Routine repair/update costs on equipment. Plagiarism Prevention 4. Salary owed but not yet paid. are solved by group of students and teacher of Commerce, which is also the largest student community of Commerce. Following is the list of various accounts. 4. Give reasons for your answers. Capital receipt = Shown as a liability or reduce the value of a capital expenditure. (v) Octroi duty paid on goods. [3-4 Marks] (a) Free supply of stationary to the students by the government. (i) Wages paid on the purchase of goods. a. X-Ray plant purchased by a hospital. (g) Capital Expenditure = Legal expenses incurred in purchasing landed property are capital expenditures, as part of the cost of a non-current asset purchased. Capital receipt and revenue receipt, both are the very important components of accounting. cash, computer systems, patents) 2. We'll define them briefly and then look at each one in detail: 1. Rent Revenue is ; it stockholders' equity. A D V E R T I S E M E N T. 4 Comments on . For “Classify the following as direct and indirect taxes”, refer HOTS. (b) Economic assistance given according to Ladli scheme. If the loss is manageable, they are debited to Profit and Loss Account of the same year. Fees received but not yet earned. Image Guidelines 5. 1. Reply. If capital losses are huge, it is common to spread them over a number of years and a proportionate amount is charged to Profit and Loss Account every year. (d) Annual service costs for a … Learn. Fees earned but not yet received. Such losses are debited in the Profit and Loss Account. Prohibited Content 3. Multiple choice questions (MCQs) Chhavi sharma . (Delhi 2010) (i) Wealth tax (ii) Value added tax It is the process of causing a liability by a commodity. Legal fees paid for assessing title deeds for purchase of building 3. Let us learn more about them. Capital and revenue items. Accounting Financial Accounting Classify the following items as (1) prepaid expense, (2) unearned revenue, (3) accrued revenue, or (4) accrued expense: a. a. (iii) Transportation paid on machinery purchased. Ram (Customer) viii. (e) Revenue Expenditure = Wages paid for manufacture of goods is revenue expenditure as it has been incurred connection with the manufacture of goods for resale. Copyright 10. Oil change for the delivery truck: b. (b) The cost of replacement valves on all the labelling machines in a canning factory. Give reason for your answer. issue of shares at premium, the premium on shares i.e. Revenue Receipts are the amount received in the ordinary course of a business. It is important to correctly differentiate between the two. STUDY. But the range is wider than that. For example, profit from sale of goods, income from investments, discount received, Interest Earned etc. Classify the following items as capital or revenue expenditure : (i) An extension of railway tracks in the factory area; (ii) Wages paid to machine operators; (iii) Installation costs of new production machine; (iv) Materials for extensions to foremen’s offices in the factory; (v) Rent paid for the factory; (vi) Payment for computer time to operate a new stores control system; (vii) Wages paid to own employees for building … 4. Balance amount is shown in the Balance Sheet as an asset and it is written off in future years. (g) Legal expenses incurred in purchasing a landed property. capital expenditure and revenue expenditure. Non-Tax Revenue: Non-Tax revenue refers to receipts of the government from all sources other than those of tax receipts. Back to: Capital and revenue items (quizzes) Show your love for us by sharing our contents. An expense is a word very similar to expenditure but expense shows the deduction in the value of the asset while expenditure simply denotes the obtaining of as… Rs 50,000 are a capital loss. 2. The five account types are: Assets, Liabilities, Equity, Revenue (or Income) and Expenses. 2. Dividends is ; it stockholders' equity. There are two main types of of capital items; (i) capital expenditure and (ii) capital receipt. Classify the following items into revenue expenditure and capital expenditure. TOS 7. Bank Overdraft vii. (d) Capital Expenditure = Amount expended on freight and carriage and installation charges of the new machine into working condition. Another example, suppose a company issues its shares of the face value of Rs 100 for Rs 110 each, i.e. (iv) Octroi duty paid on machinery. Module 2: Capital & Revenue Expenditure Classify the following expenditure/income into capital and revenue with reasons: 1. The following objectives are covered in this lesson: Classify the following items as either revenue or capital expenditure: (a) An extension to an office building costing £24,000. Classify the following items as issuance of stock, dividends, revenues, or expenses. Give two examples of each. One obvious case in point is the distinction between the ordinary revenue and capital gain nature of transactions; another is the inter-period allocation of expenditure. Capital Expenditure Capital expenditure includes costs incurred on the acquisition of a fixed asset and any subsequent expenditure that increases the earning capacity of an existing fixed asset. A. This can be a payment is cash or can also be the exchange of some valuable item in exchange for goods or services. Home - (a) Cost of overhauling and painting a recently bought old van. Capital items are those items which have long term effects on business, (normally more than one year). There are two main types of revenue items; (i) revenue expenditure and … 3. mortgages, vehicle loans) 3. Disclaimer 9. Aren't they all exchanges? Capital and Revenue Items Capital Items: The items which have long term effects on business - generally more than a year. Classify each of the following items as belonging in the revenue, expenditure, human resources/payroll, production, or financing cycle. The main sources of non-tax revenue are: 1. c. Sale of old sports materials. The following are the types of capital and revenue items in accounting: Capital Receipts is the amount received in the form of additional Capital (by issuing shares) loans or by the sale proceeds of any fixed assets. Content Filtrations 6. The following transactions are taken from the books of H. Hanson for the first week of January 2019: (a) Cost of the air-conditioning the office of director. Revenue Re­ceipts are shown in the Profit and Loss Account. It is the incomes earned from selling merchandise, or in the form of discount, commission, interest, transfer fees etc. For example, fixed assets; tangible or intangible assets; (land, building, machinery, legal rights, etc) are capital items. (D) Revenue Profits: Revenue Profits are earned in the ordinary course of business. When Capital Profit arises, Capital losses are gradually written off against them. (a) Capital Expenditure = The benefit of this expenditure will be available for a number of years; therefore, it is capital expenditure. d. Carriage paid on goods purchased. 2. State with reasons whether the above items of expenditures are capital or revenue in nature: (a) Capital Expenditure = When a second hand asset is purchased then any expenditure incurred to put it into working order will be treated as capital expenditure. Before publishing your articles on this site, please read the following pages: 1. So far, we’ve spoken mainly about physical revenue expenditures. Capital losses occur when selling fixed assets or raising share capital. Liabilities: money that the company owes to others (e.g. Then indicate whether each item increases or decreases stockholders’ equity. The following points of difference between capital expenditure and revenue expenditure gives the importance of the distinction: 1. (b) Capital Expenditure = This is a capital expenditure as it is a part of the total cost of the building. The Questions and Answers of Classify the following items as revenue receipts, revenue expenditure, capital receipts and capital payments? Such profits are (a) transferred to Capital Account or (b) transferred to Capital Reserve Account. (d) The freight, carriage and the installation charges cost on new machine amounting to $400. For instance, sale of goods, loss may incur. (ii) Carriage paid on goods purchased. Machinery ii. You are given a number of accounts below. The amount of discount is a capital loss. State with reasons whether the fallowing items of expenditure are capital or revenue. Why do accountants have to classify items as capital or revenue expenditures? To fully understand how to post transactions and read financial reports, we must understand these account types. This amount is utilised for meeting Capital losses. Capital expenditures are major investments of capital to expand a company's business. Revenue profits appear in the Profit and Loss Account. (i) Free supply of stationery to the students by the government ... Classify the following items into capital and revenue: 1. Capital profits are earned as a result of selling some fixed assets or in connection with raising capital for the firm. e. Donation received for constructing a swimming Pool. Distinguish between capital and revenue expenditures: Classify the following items as either a capital expenditure or a revenue expenditure (an expense) a. So, it is important to classify the Capital and Revenue Items. The distinction between the nature of capital and revenue expenditure is important as only capital expenditure is included in the cost of fixed asset. For example, fixed assets; tangible or intangible assets; (land, building, machinery, legal rights, etc) are capital items. Classify the following items as either revenue or capital expenditure: a) An extension to an office building costing £24,000. b) The cost of replacement valves on all the labeling machines in a canning factory. It is also defined as items that are considered as long-give assets of a firm or items that occupy the assets section in a balance sheet called Capital Items. (d) Capital Expenditure = Purchase of business means purchase of its assets and liabilities; therefore, it is a capital expenditure. Classify the following accounts into assets, liabilities, equity, expenses or income. Salaries paid to staff 4. Classify each of the following items as owner's drawings, revenue, or expense: a) advertising expense b) service revenue c) insurance expense d) salaries and wages expense e) owner's drawings f) rent revenue g) utilities expense A two-year premium paid on insurance policy. (f) Legal expenses incurred for debt collection. Receipts and invoices keep the records of expenditures. (c) Expenditure on the construction of computer lab in school by the government. For example a land purchased by a business for Rs 2, 00,000 is sold for Rs. IAS 1 sets out the overall requirements for financial statements, including how they should be structured, the minimum requirements for their content and overriding concepts such as going concern, the accrual basis of accounting and the current/non-current distinction. Syed alfaz . Advertising Expense is a(n) ; it stockholders' equity. 2, 50,000. Contact us - About us - Privacy policy, Effects of Incorrect Treatment of Capital and Revenue Items, Capital Expenditure and Revenue Expenditure, Double Entry for Expenses and Incomes (Revenues), Absorption Costing Approach or Total Costing, Accounting for Assets, Liabilities and Capital, Bad Debts and Provision for Doubtful Debts, Books of Original Entry and Division of Ledger. Is it true that the higher the depreciation, the lower the net income? Conversely, revenue expenditure implies the routine expenditure, that is incurred in the day to day business activities. Privacy Policy 8. I think it is better to go through this MCQ’s. Subscriptions received in advance by a magazine publisher. Answer the following questions in depth .... 1. Classify the following items as (a) accrued revenue, (b) accrued expense, (c) unearned revenue, or (d) prepaid expense: 1. A building purchased for Rs 2, 00,000 is sold for Rs 1, 50,000. (b) Cost of pulling down an old building in order to replace it by a new one. There are two main types of revenue items; (i) revenue expenditure and (ii) revenue receipts. 3. (c) Revenue Expenditure = Expenditure incurred on renewal of patent is revenue expenditure as it is of recurring nature and it has been incurred in the ordinary course of business. Interest: These are braodly classified into two categories, i.e. Reply. The lesson titled Comparing Revenue Expenditure & Capital Expenditures is a great source for more information on this accounting subject. Of building 3 allocation of capital items: revenue items: revenue profits are earned as liability. 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