Financial Statements 1 Test 47

Marshalling refers to the arrangement of assets and liabilities in particular order. it can be done in two ways- on the basis of permanence and on the basis of liquidity.

Revenue expenditure refers to expenses incurred in the day-to-day operations of a business to maintain its earning capacity during the current accounting period. These expenses are incurred for the ongoing operations of the business and are typically short-term in nature. Examples include rent, wages, utilities, repairs, and advertising costs.

Goodwill is considered as an asset so amount spent on acquiring goodwill will be capital expenditure.

Buying land for building a factory is considered a capital expenditure because it is an investment in acquiring a fixed asset (land) that will be used by the company in its operations over an extended period to generate revenue.

Deferred revenue expenditure is expenditure that provides benefits beyond the current accounting period. It is typically incurred for expenses such as advertisement expenses, preliminary expenses, or expenses incurred in setting up new facilities, which contribute to the business's future revenue-generating activities.

Initially, deferred revenue expenditure is recorded by debiting an asset account because it represents an expenditure that provides future economic benefits. These future benefits are recognized as an asset on the balance sheet until they are realized over subsequent accounting periods.

Operating profit is calculated by subtracting operating expenses from gross profit. Operating expenses include selling, general, and administrative expenses incurred in the day-to-day operations of the business.

Fixed assets are those which take a period of more than one year to convert it in to cash so computer will be classified as fixed asset.

Wages paid for the erection of machinery should be debited to the Wages account. This is because wages represent an expense incurred by the business for the labor involved in the erection process. Debiting the Wages account reflects the expenditure on labor, which is an operating expense of the business.

Operating profit represents the profit earned from the core business operations of a company, excluding non-operating income and expenses such as interest and taxes. It indicates the profitability of the business's primary activities.