Capital and Revenue Test 7

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Capital and Revenue Test 7

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Weekly Quiz Competition

Question 1
1 / -0

Any donation received for a specific purpose is an ________.

A
Liability

B
Assets

C
Revenue receipts

D
Capital receipts

Solution

Donation received by the non profit organization is a receipt and should be recorded in receipt and payment account.
A donation which is received as normal course without any specific condition, is considered as revenue receipt.
A donation which is received for a specific purpose is a capital receipts. This has to be utilized only for the specific purpose. This is a capital receipt.
Question 2
1 / -0

A company incurred Rs. 10 crore on massive advertisement campaign during CWG in order to launch a new product in the market. This expenditure is a ______.

A
Capital Expenditure

B
Revenue Expenditure

C
Deferred Revenue Expenditure

D
None of the above

Solution

Deferred revenue expenditure is an expenditure which is revenue in nature and incurred during an accounting period but the benefits from this is to be arrived in coming years.

Massive advertisement campaign done by the organization will give the benefits to the business in coming years too. Hence this should be treated as deferred revenue expenditure.
Question 3
1 / -0

Treating capital expenditure as revenue expenditure will __________.

A
increase profit

B
decrease profit

C
increase net worth

D
increase current ratio

Solution

Treating Capital expenditure as revenue expenditure is an error of principle.
If capital expenditure is treated as revenue expenditure, this will reduce the profitability.
For example, Rs.5000 purchase of furniture is debited to purchase account. In such a case, purchases increase which ultimately reduces profits.
Question 4
1 / -0

Cost of goods sold is Rs. 1,00,000, rate of gross profit on sales is 20%. What is the amount of sales?

A
Rs. 1,20,000

B
Rs. 80,000

C
Rs. 1,25,000

D
None of these

Solution

Gross Profit is represented as
Sales-Cost of Goods sold=Gross Profit
Assuming sales is Rs.100, than gross profit is Rs.20
Cost of goods sold represent 80% of the sales.
In the given situation:
Cost of goods sold is Rs 100000 which is 80% of sales
Sales= Rs 100000/80*100
Sales Rs 125000
Question 5
1 / -0

Receipt from the sale of season tickets for a series of soccer matches' should be classified as _________________.

A
Accrued asset

B
Accrued liability

C
Unearned revenue

D
Prepaid expense

Solution

Unearned revenue is that revenue which is received in advance and services or goods are not provided against these. It has to be shown as liability and will be transferred to revenue account when the services are provided for.
Question 6
1 / -0

The written down value of a plant is Rs. 6,000 (the original value being Rs. 10,000). It is sold for Rs. 12,000 during the current financial year. Which one of the following is true in this regard?

A
Capital profit = Rs.6,000

B
Revenue profit = Rs. 6,000

C
Capital profit and Revenue profit = Rs.2,000 and Rs.6,000.

D
Capital profit = Rs. 12,000

Solution

Capital profit is a capital gain which is arise from the sale of capital asset such as stock, bond,real estate etc. when the asset is sold at a price which exceeds the purchase price the profit is capital profit.
Revenue is the total amount of income generated by the sale of goods or services related to the company's primary operations.
Capital profit = 12000 - 10000
= 2000
Revenue Profit = 12000 - 6000
= 6000
Question 7
1 / -0

Which of the following is correct ?

A
Pre-operative expenses are revenue expenses.

B
Errors of Principle will affect Trial Balance.

C
Depreciation is an amortised expenditure.

D
When we buy furniture on cash, we debit Cash Account.

Solution

Option A is correct.

This is because pre-operative expenses are those expenses incurred by a company before commencement of commercial operation, or before starting to earn income through the production and sale of goods. EG: Flotation costs of issuing Shares, registration costs of the firm, legal costs etc.

Option B is the wrong answer because errors of principle will not affect trial balance.

Option C is also the wrong answer because depreciation is a capital expenditure.

Option D is also the wrong answer because when we buy furniture on cash we debit Furniture A/c and credit Cash A/c.
Question 8
1 / -0

Sale of investment is ______________.

A
Capital receipts

B
Capital expenditure

C
Both (A) & (B)

D
None of the above

Solution

Receipts are sub classified as revenue receipt and capital receipt.

Revenue receipt are those which received during the course of normal business operations. Like sale of goods etc.

Capital receipts are those which received on account of sale of any capital item. Sale of investment is a non trading activity hence it is a capital receipt.
Question 9
1 / -0

The following are capital expenditure except______.

A
computer and office equipment purchased for business use

B
office building

C
patents held on new product design developed

D
furniture purchased for resale

Solution

Anything purchased for resale is treated as goods for the business.
Hence if furniture purchased for resale, it is not a capital expenditure.
It is goods for resale and to be recorded as goods purchase account.
Question 10
1 / -0

A machine with a written down value of $$Rs 10000$$ has been sold for $$Rs 13000$$. The amount realized is a ___________.

A
capital receipt and profit involved should be transferred to capital reserve

B
revenue receipt

C
capital receipt and profit involved should be transferred to General Reserve

D
capital receipt and profit involved should be transferred to profit and loss account

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Capital and Revenue Test 7

Result

Capital and Revenue Test 7

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SHARING IS CARING

Question 1

Liability

Assets

Revenue receipts

Capital receipts

Solution

Question 2

Capital Expenditure

Revenue Expenditure

Deferred Revenue Expenditure

None of the above

Solution

Question 3

increase profit

decrease profit

increase net worth

increase current ratio

Solution

Question 4

Rs. 1,20,000

Rs. 80,000

Rs. 1,25,000

None of these

Solution

Question 5

Accrued asset

Accrued liability

Unearned revenue

Prepaid expense

Solution

Question 6

Capital profit = Rs.6,000

Revenue profit = Rs. 6,000

Capital profit and Revenue profit = Rs.2,000 and Rs.6,000.

Capital profit = Rs. 12,000

Solution

Question 7

Pre-operative expenses are revenue expenses.

Errors of Principle will affect Trial Balance.

Depreciation is an amortised expenditure.

When we buy furniture on cash, we debit Cash Account.

Solution

Question 8

Capital receipts

Capital expenditure

Both (A) & (B)

None of the above

Solution

Question 9

computer and office equipment purchased for business use

office building

patents held on new product design developed

furniture purchased for resale

Solution

Question 10

capital receipt and profit involved should be transferred to capital reserve

revenue receipt

capital receipt and profit involved should be transferred to General Reserve

capital receipt and profit involved should be transferred to profit and loss account

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