Capital and Revenue Test 1

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Capital and Revenue Test 1

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Weekly Quiz Competition

Question 1
1 / -0

Insurance expenses paid to bring an equipment from the place of purchase to the place of installation is a type of ____________.

A
Revenue expenditure

B
Capital expenditure

C
Deferred revenue expenditure

D
Operating expense

Solution

Expenses paid to bring any assets to its installation location are treated as capital expenditure and to be added with the value of assets.

Insurance premium paid to bring the equipment from the place of purchase to the place of installation is a capital expenditure.
Question 2
1 / -0

Expenses incurred on research and development is an example of __________.

A
Capital Expenditure

B
Revenue Expenditure

C
Deferred Revenue Expenditure

D
None of the above

Solution

Research & development activity done in the business to identify the new avenues or for process improvement. The outcome of this activity gives benefits to the business in coming years ahead. Hence this kind of expenses are considered as deferred revenue expenses and some part of these to be charged to profit & loss account.
Question 3
1 / -0

Profit from sale of assets is example for __________.

A
revenue profit

B
capital profit

C
loss

D
none of the above

Solution

Profits generated from the normal trading activity is considered as revenue profits. Selling of fixed assets is an abnormal activity, not a business activity. hence profit arising out of sale of assets is a capital profit, This has to be recorded in profit & loss account as an exceptional item.
Question 4
1 / -0

Any amount received towards an endowment fund is a __________ receipt.

A
Ordinary

B
Special

C
Revenue

D
Capital

Solution

Endowment fund is normally associated with non profit organization.Non profit organization should record investment income as ordinary receipts. An amount received for endowment fund is an ordinary receipt.
Receipt of endowment fund is not generated by the business operations. It's a rare/occasional receipt which is used for supporting regular business income to provide stability in income.
Question 5
1 / -0

The cash price of a machine is Rs. 1,20,000 and its hire purchase price is Rs. 1,50,000 to be paid in five equal yearly installments. If a company purchases the machine on hire purchase basis, the amount of capital expenditure will be _______________.

A
Rs. 1,20,000

B
Rs. 1,35,000

C
Rs. 1,50,000

D
Rs. 1,60,000

Solution

Here,
Hire purchase price - Cash Price
= 150000-120000
= 30000 loss,
So,the amount of capital expenditure
150000 - 30000
= 120000
Question 6
1 / -0

Premium received on issue of shares is a __________.

A
Capital receipt

B
Revenue receipt

C
Deferred capital receipt

D
Deferred Revenue Receipt

Solution

Any amount charged over and above the face value of the share is called a premium amount. Capital receipts are those receipts which are of non recurring nature and leads to creation of liability or decrease in assets. Premium amount is not received on regular basis and it creates liability for business. So, it is a capital receipt.
Question 7
1 / -0

Legal expenses in respect of claims of an insurance company is shown in _________.

A
P&L a/c

B
Revenue a/c

C
Balance sheet

D
Surplus a/c

Solution

Revenue Account is prepared under Mercantile System of Accounting.
Items appearing in Revenue Account: Premiums: General insurance policies are issued for a short period, say, for a year.
Question 8
1 / -0

Which of the following should not be called as sales?

A
Good sold on credit

B
Office fixtures sold

C
Sale of item previously included in purchase

D
Good sold for cash

Solution

The term sales is used for the normal trading activity of the business. The goods in which the firms deals are the trading goods and sale of this is considered as sales account.

Selling of an office fixture is not the trading activity of the business hence not to be recorded as sales. Any profit or loss on account of such transaction to be recorded in profit & loss account.
Question 9
1 / -0

Rs. 500 spent on servicing office type writer should be debited to _________.

A
Expenses Account

B
Type writer Account

C
Repairs Account

D
Services Account

Solution

Amount spend on normal servicing or repair of any asset is a revenue expenditure and should be debited to repairs account in profit & loss account. Any amount spent which improves the life of any asset, should be capitalized.
Question 10
1 / -0

Which of the following expenses should not be treated as capital expenditure?

A
Expenses paid on installation of a plant

B
Cost of dismantling a building in case a new building is to be constructed on the land

C
Legal expenses incurred to defend a suit related to title of patent. The suit has been lost

D
The fees paid to engineer who constructed the plant

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Re-Attempt Weekly Quiz Competition

Capital and Revenue Test 1

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Capital and Revenue Test 1

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SHARING IS CARING

Question 1

Revenue expenditure

Capital expenditure

Deferred revenue expenditure

Operating expense

Solution

Question 2

Capital Expenditure

Revenue Expenditure

Deferred Revenue Expenditure

None of the above

Solution

Question 3

revenue profit

capital profit

loss

none of the above

Solution

Question 4

Ordinary

Special

Revenue

Capital

Solution

Question 5

Rs. 1,20,000

Rs. 1,35,000

Rs. 1,50,000

Rs. 1,60,000

Solution

Question 6

Capital receipt

Revenue receipt

Deferred capital receipt

Deferred Revenue Receipt

Solution

Question 7

P&L a/c

Revenue a/c

Balance sheet

Surplus a/c

Solution

Question 8

Good sold on credit

Office fixtures sold

Sale of item previously included in purchase

Good sold for cash

Solution

Question 9

Expenses Account

Type writer Account

Repairs Account

Services Account

Solution

Question 10

Expenses paid on installation of a plant

Cost of dismantling a building in case a new building is to be constructed on the land

Legal expenses incurred to defend a suit related to title of patent. The suit has been lost

The fees paid to engineer who constructed the plant

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