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1. Capital and Revenue Expenditure
2. Capital expenditure Buy fixed assets or
Add to the value of an existing fixed asset
3. Revenue expenditure Day-to-day running of business
4. Think it over Buying a van
Petrol costs for van
Repairs to van
Putting extra headlights on van
Electricity costs of using machinery
Painting outside of new building
Three years later repainting outside the same building
5. Think it over A builder was engaged to perform some work on your premises, the total bill being $4,500. If one-third of this was for repair work and two-thirds for improvements, what will be the correct accounting treatment?
6. Think it over On 1 January 2009, DEP Tour Operator Limited purchased four second-hand tour buses. The list price of the buses was $500,000 each and the supplier gave a $200,000 trade discount because of the bulk purchase. The payment was to be made through four half-yearly equal instalments of $530,000 each. The company spent a further $1,200,000 on each bus for renovations. The freight charges for the delivery of the buses amounted to $108,000. During installation, an accident happened and the company paid a repair cost of $20,000. In order to legalise the use of the buses as tour buses, an inspection fee of $90,000 was paid. An annual licence fee of $80,000 was also paid. You are required to prepare a statement to calculate the cost of the buses. (HKAL 2001)
7. Incorrect treatment of expenditure Capital expenditure is incorrectly treated as revenue expenditure
Revenue expenditure is incorrectly treated as capital expenditure
8. Capital expenditure is treated as revenue expenditure Value of fixed asset is understated
Net profit is understated
9. Revenue expenditure is treated as capital expenditure Revenue expenditure is treated as capital expenditureValue of fixed asset is overstatedNet profit is overstated
10. Think it over XYZ Co purchased a new machine at the list price of
$250,000. The supplier offered a trade discount of 10%.
The supplier also provided that if the company settled
the balance within 10 days, a further 10% cash discount
would be given. XYZ Co promptly settled the debt, taking
the advantage of both discounts. In addition, the company
Incurred installation costs of $4,500. The total
transportation and insurance cost incurred for the shipment
of the machine amounted to $3,000 and $6,000 respectively.
$1,200 was paid to the supplier for the maintenance charge
for the current year.
Explain how each of the above figures should be
accounted for by the company. (HKAL 1998)