Lec2.State Whether the Following Statements Are True Or False

Lec2.State Whether the Following Statements Are True Or False

Lec2.State whether the following statements are true or false:-

  1. Pre-operative expenses are revenue expenses
  2. Heavy expenditure incurred on advertisement at the time of introducing a new product is a deferred revenue expenditure.
  3. Expenses incurred to keep the machine in working condition is a capital expenditure.
  4. An expenditure intended to benefit the current period is a revenue expenditure.
  5. Amounts written off from the cost of Fixed Assets is Capital Expenditure.
  6. Wages paid to workers to produce a tool to be captively consumed is capital expenditure.
  7. Deferred Revenue Expenditure is current year’s revenue expenditure to be paid in later years.
  8. Expenditure which results in acquisition of a permanent assets is a capital expenditure.
  9. Wages paid for erection of machinery are debited to Profit and Loss Account.
  10. Amount paid for acquiring Goodwill is deferred revenue expenditure.
  11. Overhaul expenses of a Second-hand machinery purchased are revenue expenditure.
  12. Major repair charges including replacement of certain worn-out parts incurred before using a second-hand Car purchased recently is a capital expenditure.
  13. The gain from sale of capital assets need not be added to revenue to ascertain the net profit of a business.
  14. Expenditure, which results in acquisition of a permanent asset of enduring benefit to the business, is a capital expenditure.
  15. Expenses done on the white washing of factory building done after every six months is Revenue expenditure.
  16. Amount spent for the replacement of worn out part of a machine is capital expenditure.

Lec3.Decide whether the following expenditures are capital, revenue or deferred revenue and also state their amount:

1.Purchase of an asset for Rs.2,00,000 and installation expenses incurred of Rs.10,000

2.A fixed asset manufactured at a cost of Rs.2,50,000 out of which Rs.1,00,000 was raised as loan from X on 1-1-1998 at an interest of 18% p.a. The construction was completed on 1-8-1998 and the accounting year followed by the business is calendar year. The loan is outstanding on 31-12-1998;

3.Upgradation of the personal computer by X by installing 8MB RAM at a cost of Rs.800;

4.Repairing and white wash of Satyam Cineplex at a cost of Rs.2,80,000 including the installation of digital sound system at a cost of Rs. 1,50,000;

5.Loss by fire in the godown of X of Rs.30,000;

6.Incurrence of advertising expenses to launch a new product of Rs.50,000;

7.Machinery of Rs.20,000 purchased on hire purchase and the amount is payable in four half yearly instalments of Rs.6,000 each;

8.Erection of a shed with asbestos sheet roof in a college for parking the vehicles of students at a cost of Rs.10,000

9.Purchase of a new machine by exchanging an old machine of the book value of Rs.40,000 by paying Rs.15,000 cash. The trade in allowance given by the seller for the old machine is Rs.35,000;

10.Legal charges Rs.10,000 paid for the registration of the building in the name of the owner.

Lec4. (1)Classify the following items of expenses and incomes properly.

a) Purchased a second hand Motor for Rs 20,000 and spent Rs 100 for a licence for the driver.

b) The fine of Rs 100 was levied for parking the vehicle in no parking area.

c) The Motor was damaged in accident and Rs 15,000 are received from the insurance company as compensation.

d) Incurred Rs 2,000 for installation of new machinery

e) Rs 300 were paid for the up-keep of a water pump.

Lec4. (2)State whether the following receipts are of capital or revenue nature?

a) Amount received on sales of furniture.

b) Recovery of bad debts.

c) Amount received as a loan from the bank.

d) Additional Capital introduced.

e) Income tax refund.

f) Insurance claim received for destruction of machinery.

Lec 5 State whether the following expenditure is a Capital, Revenue or Deferred Revenue Expenditure.

a) Cost of replacement of a defective part of the machinery.

b) Expenditure incurred in preparing a project report.

c) Expenditure for training employees for better running of machinery

d) Expenditure incurred for repairing cinema screen.

Lec 6(1)X and Co moved their factory to a more suitable premises. Statethe nature of receipts and payments.

a) A sum of Rs 9,500 was spent for dismantling, removing and reinstalling plant, machinery and fixtures.

b) The removal of stock from the old factory to the new at a cost of Rs 1,000

c) Plant and Machinery which stood in the books at Rs 1,50,000 included a machine at a book value of Rs 3,400. This being obsolete, was sold of at Rs 900 and was replaced by a new machine which cost Rs 4,800.

d) The freight and cartage on the new machine amount to Rs 300 and erection charges Rs 550

e) The furniture appeared in the books at Rs 15,000 of these, some portion of book value at Rs 3,000 was discarded and sold at Rs 1,200, New furniture of book value of Rs 2,400 was acquired.

f) A sum of Rs 2,200 was spent on painting the new factory.

Lec 6(2)Would you consider the following chargeable to capital or revenue?

a) Premium given for lease Rs 5,000

b) Commission on issue of debentures Rs 1,000

c) Discount on issue of shares Rs 1,000.

d) Expenditure incurred on renovation of old building Rs 5,000

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