Text Book Back Questions and Answers
I. Multiple Choice Questions
Choose the Correct Answer
Question 1.
Amount spent on increasing the seating capacity in a cinema hall is ……………….
(a) Capital expenditure
(b) Revenue expenditure
(c) Deferred revenue expenditure
(d) None of the above
Answer:
(a) Capital expenditure
Question 2.
Expenditure incurred 20,000 for trial run of a newly installed machinery will be ……………….
(a) Preliminary expense
(b) Revenue expenditure
(c) Capital expenditure
(d) Deferred revenue expenditure
Answer:
(c) Capital expenditure
Question 5.
Revenue expenditure is intended to benefit ……………….
(a) Past period
(b) Future period
(c) Current period
(d) Any period
Answer:
(c) Current period
Question 6.
Pre – operative expenses are ……………….
(a) Revenue expenditure
(b) Prepaid revenue expenditure
(c) Deferred revenue expenditure
(d) Capital expenditure
Answer:
(d) Capital expenditure
II. Very Short Answer Questions
Question 1.
What is meant by revenue expenditure?
Answer:
Question 2.
What is capital expenditure?
Answer:
It is an expenditure incurred during an accounting period, the benefits of which will be available for more than one accounting period. It includes any expenditure resulting in the acquisition of any fixed asset or contributes to the revenue earning capacity of the business. It is non-recurring in nature.
Question 3.
What is capital profit?
Answer:
Capital profit is the profit which arises not from the normal course of the business. Profit on sale of fixed assets is an example of capital profit.
Question 4.
Write a short note on revenue receipt.
Answer:
Receipts which are obtained in the normal course of business are called revenue receipts. It is recurring in nature. The amount received is generally small.
Question 5.
What is meant by deferred revenue expenditure?
Answer:
III. Short Answer Questions
Question 1.
Distinguish between capital expenditure and revenue expenditure.
Answer:
Question 2.
Distinguish between capital receipt and revenue receipt.
Answer:
Question 3.
What is deferred revenue expenditure? Give two examples.
Answer:
1. An expenditure, which is revenue expenditure in nature, the benefit of which is to be derived over a subsequent period or periods is known as deferred revenue expenditure.
2. The benefit usually accrues for a period of two or more years. It is, for the time being, deferred from being charged against income. It is charged against income over a period of certain years.
Examples:
IV. Exercises
Question 1.
State whether the following expenditures are capital, revenue, or deferred revenue.
(a) Advertising expenditure, the benefits of which will last for three years.
(b) Registration fees paid at the time of registration of a building.
(c) Expenditure incurred on repairs and whitewashing at the time of purchase of an old building in order to make it usable.
Answer:
(a) Deferred revenue expenditure
(b) Capital expenditure
(c) Capital expenditure
Question 2.
Classify the following items into capital and revenue.
(a) Registration expenses incurred for the purchase of land.
(b) Repairing charges paid for remodeling the old building purchased.
(c) Carriage paid on goods purchased.
(d) Legal expenses paid for raising of loans.
Answer:
(a) Capital expenditure
(b) Capital expenditure
(c) Revenue expenditure
(d) Capital expenditure
Question 3.
State whether they are capital and revenue.
(a) Construction of building 10,00,000.
(b) Repairs to furniture 50,000.
(c) White-washing the building 80,000.
(d) Pulling down the old building and rebuilding 4,00,000.
Answer:
(a) Capital expenditure
(b) Revenue expenditure
(c) Revenue expenditure
(d) Capital expenditure
Question 4.
Classify the following items into capital and revenue.
(a) 50,000 spent on a railway siding.
(b) Loss on sale of old furniture.
(c) Carriage paid on goods sold.
Answer:
(a) Capital expenditure
(b) Capital loss
(c) Revenue expenditure
Question 5.
State whether the following are capital, revenue, and deferred revenue.
(a) Legal fees paid to the lawyer for acquiring land 20,000.
(b) Heavy advertising cost of 12,00,000 spent on introducing a new product.
(c) Renewal of factory license 12,000.
(d) A sum of 4,000 was spent on painting the factory.
Answer:
(a) Capital expenditure
(b) Deferred revenue expenditure
(c) Revenue expenditure
(d) Revenue expenditure
Question 6.
Classify the following receipts into capital and revenue.
(a) Sale proceeds of goods 75,000.
(b) Loan borrowed from bank 2,50,000.
(c) Sale of investment 1,20,000.
(d) Commission received 30,000.
(e) 1,400 wages paid in connection with the erection of new machinery.
Answer:
(a) Revenue receipts
(b) Capital receipts
(c) Capital receipts
(d) Revenue receipts
(e) Capital expenditure
Question 7.
Identify the following items into capital or revenue.
(a) Audit fees paid 10,000.
(b) Labour welfare expenses 5,000.
(c) 2,000 paid for servicing the company vehicle.
(d) Repair to furniture purchased second-hand 3,000.
(e) Rent paid for the factory 12,000.
Answer:
(a) Revenue expenditure
(b) Revenue expenditure
(c) Revenue expenditure
(d) Capital expenditure
(e) Revenue expenditure
Textbook Case Study Solved
Question 1.
Sadhana decides to start a business selling air – conditioners. She buys different brands of air – conditioners. She also buys a delivery van, some furniture, and some tools to fix air- conditioners. She buys some stationery items and cleaning liquid. She spends some amount on advertising her shop. She records the entire amount spent in the trading account.
Now, discuss the following points:
Question 1.
Is it correct to record the entire amount spent in the first year of trading in the trading account? What impact will it have on the profit for the year?
Answer:
It is not correct to record the entire amount spent in the first year of trading in the trading account. It will be shown as a capital expenditure. For example furniture and delivery van.
Question 2.
What are her fixed assets?
Answer:
4. Question 3.
Does she apply accounting concepts? If not which is the concept she does not apply?
Answer:
No, she does not apply accounting concepts. She does not apply business entity concepts.
5. Question 4.
Can you help Sadhana to classify the expenditure?
Answer:
Yes, I can help Sadhana to classify the expenditure:
Question 5.
What other capital, revenue, and deferred revenue expenditure her business may incur in the future?
Answer:
In the future:
I. Multiple Choice Questions
Choose the correct answer
Question 1.
Expenses on research and development will be classified under _______.
a) Preliminary expense
b) Revenue expenditure
c) Capital expenditure
d) Deferred revenue expenditure
Answer:
d) Deferred revenue expenditure
Question 2.
There are types of expenditure ………………
(a) One
(b) Two
(c) Three
(d) Four
Answer:
(c) Three
Question 3.
Revenue receipts are _______ in the business.
a) non-recurring
b) recurring
c) neither of the above
d) A AND B
Answer:
b) recurring
Question 4.
An asset worth 1,00,000 is sold for 85,000 the capital loss amounts to _______.
a) 85,000
b) 1,00,000
c) 15,000
d) 70000
Answer:
c) 15,000
II. Very Short Answer Questions
Question 1.
What is revenue loss?
Answer:
Revenue losses are the losses that arise from the normal course of the business. In other words, ‘net loss’ – i.e., excess of revenue expenditures over revenue receipts.
Question 2.
Write any two features of revenue expenditure.
Answer:
III. Short Answer Questions
Question 1.
Write three features of deferred revenue expenditure.
Answer:
Question 2.
What are the classifications of expenditures?
Answer:
Question 3.
Write any three examples of revenue expenditure.
Answer: