classify the following into capital and revenue items

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

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