Financial Statements 1 Test 48

Income tax paid by a solo trader is not considered a business expense but a personal liability of the owner. Therefore, it is not recorded on the trading account or profit and loss account. Instead, it is deducted from the owner's capital in the balance sheet, as it reduces the owner's equity in the business. This treatment reflects the separation between the business entity and the owner's personal finances in accounting records.

Capital expenditure refers to the amount spent to acquire, improve, or extend fixed assets, which are long-term assets held by a business for use in generating revenue over multiple accounting periods. These expenditures typically benefit the business over the long term rather than being consumed immediately. Examples of capital expenditure include the purchase of land, buildings, machinery, equipment, vehicles, and significant improvements to existing assets.

Capital expenditure refers to funds spent on acquiring or improving fixed assets, such as land and buildings, which provide long-term benefits to the business. Unlike revenue expenditure, which is incurred for day-to-day operational expenses, capital expenditure is aimed at enhancing the company's productive capacity or efficiency. Therefore, purchasing land and buildings is considered a capital expenditure as it contributes to the company's growth and generates returns over multiple accounting periods.

Capital receipts are generally generated by sale of fixed assets so it is directly shown in balance sheet.

Preliminary expenses are considered fictitious assets because they represent intangible expenditures incurred during a company's setup phase, such as incorporation and legal fees. They do not directly contribute to revenue generation and are spread over future periods. Thus, they are not deferred capital or revenue receipts but rather represent costs with future benefits.

Expenditure incurred by a publisher for acquiring copyrights is considered capital expenditure. Capital expenditure refers to the expenditure incurred for acquiring or improving a long-term asset that will benefit the business over multiple accounting periods. Acquiring copyrights allows the publisher to use and benefit from the copyrighted material over an extended period, making it a capital expenditure. This expenditure enhances the company's intangible asset base, which can contribute to future revenue generation. 

Depreciation is revenue expenditure. These are charged directly to depreciation account.

Operating profit is calculated by subtracting the operating expenses directly associated with the core business operations from the gross profit. These operating expenses typically include office administration expenses and selling and distribution expenses.

Option (A) accurately reflects this calculation by subtracting the sum of office administration expenses and selling and distribution expenses from the gross profit to arrive at the operating profit.

Capital expenditure is the expenditure which is done on long term assets and liabilities. So, it is for long term.

Net profit is calculated by subtracting operating expenses and other expenses (if any) from operating profit. In this case, the operating profit is $80,000 (gross profit of $80,000 minus operating expenses of $0), and there is additional income of $10,000. Therefore, the net profit is $80,000 (operating profit) + $10,000 (other income) - $50,000 (operating expenses) = $30,000.